Kick Cash Rewards to the Curb and Generate Higher Performance & Engagement

Phred Dvorak in the Wall Street Journal recently reported on company efforts to shore up employee reward and incentive pay plans in the face of plummeting stocks.

The article cites Deloitte Consulting research showing survey respondents were “worried about keeping key workers and boosting morale in the turbulent economy.” As Mike Kesner, head of Deloitte’s executive compensation group, said, “The last thing [companies] need now is for employees to throw in the towel and say, ‘I’m not going to work so hard.’”

The Deloitte survey, which covered companies of all sizes and industries, found that more than two-thirds said earnings declined or were flat over the past year, and 58% predicted their bonus plans would pay out less than their targeted amount; 10% were expecting no bonus payouts at all. Bonus plans generally pay eligible employees if companies meet preset targets such as earnings per share.

Perhaps these companies should consider a more proven alternative than cash rewards, which do not deliver the anticipated return and only come to be expected as part of compensation.

A Japanese National Institute for Physiological Sciences study found “paying people a compliment appears to activate the same reward center in the brain as paying them cash.” White Water Strategies found acknowledging staff achievements – praising employees – had the same impact on job satisfaction as a 1% increase in pay, which would equal £5.2 billion for UK businesses alone. These 2008 studies reinforced research results from a 2004 University of Chicago study that found non-cash incentives were 24% more powerful at boosting performance than cash incentives.

Are you making changes in your rewards structure due to the recession? Are you still relying on cash rewards as part of your recognition package? Have you turned the page to non-cash for greater engagement results? Tell us what works – and what doesn’t – in your environment.