Management

High-Impact, Non-Cash Rewards

In my post titled, Avoid Using Stock Options for Compensation, I discussed why cash is a great tool for recognition, but a weak tool when used for reward, retention and recruiting.  To be clear, in my terminology, the difference between reward and recognition is that reward is feedback that pertains to an event, or set of events and recognition is feedback that applies to a period of time.  Usually an extended period, in fact. 

Sticking with these semantics . . . Recognition is generally addressed through compensation (there is a much more detailed discussion of this in my previous post) which is almost always substantially cash based.  People gotta’ eat and pay rent, which are difficult to do with stock options alone.  Because compensation has to adhere to certain societal standards, a manager doesn’t have a lot of flexibility in how this type of recognition gets applied (other than through variable compensation, which is still primarily cash).  Reward, on the other hand, has no real standards.  This leaves the manager a wide range of options available to him/her to reward an employee. 

Whatever option is chosen as a reward, the key to making it successful is to make sure the chosen reward has an immediate impact on the employee and that it’s as sticky as possible – it’s positive impact lasts for the longest possible period of time.

The classic fall backs for rewards are, of course, cash and stock.  While they certainly appear like reasonable options, they actually both lack the stickiness that a great reward has.  A cash reward will either get spent or put in the bank for some future use.  In either case, the initial positive morale boost that comes from it will diminish quickly as the reward is used up or hidden away.  Stock is similar.  While there will be an initial halo effect from the grant, the positive impact that it carries will diminish rapidly.  Again, out of site, out of mind.

My preference is another option – the personalized, non-cash reward.  In this option a reward is created that is very meaningful to the particular employee that’s earned it.  It has the following advantages:

  • It’s personal – anything personalized is more appreciated
  • It generally doesn’t have to cost a lot – you’d have to apply a lot more cash to the reward if it were cash alone
  • It has a very high stickiness factor – the reward is either something tangible that will be seen on a daily basis or will be something that leaves strong memories that will be associated with the company for a long time

My favorite example of the successful implementation of this type of reward comes from one given by long time friend and cohort, Lorne Cooper, who rewarded the achievements of an engineer and avid cyclist who worked for him with a trip to France to “visit customers” during the running of the Tour de France.  Of course, it was arranged that all the “customer” meetings were along the route of the Tour.  Ten years after receiving this award, I ran into this engineer at a party.  He brought up the reward and told me it was the best thing that ever happened to him in his working life.  Now that’s a successful reward.  Total cost to the company: <$3K.

I had a similar discussion with another reward recipient I had once worked with.  This person, another engineer, had put in a super-human effort to get a software release out on time.  He was a huge sports fan and planted himself in front of his diminutive television whenever he was at home to watch whatever any cable sports network could present to him.  To reward him, we bought him a wide-screen TV, long before everyone had one.  He told me that it was a reminder of the great things about where he worked even when he returned from work having had a really crappy day.  Total cost to the company: <$10K

One final example, which I have seen applied successfully at many places, is the company paid vacation for the employee and their spouse or for their whole family.  What better recognition of a huge effort that not only took time from the employee, but from the employee’s whole family.  A trip to Scranton is nice, but making sure they go somewhere exotic is far better.  Just think what the employee, or even better, his/her family, will be thinking about the company when the scrapbook comes out.  Don’t give the employee the money for the trip.  Instead, give the employee the tickets and reservation numbers.  It’s not about the cash value, it’s about the experience.  Total cost to company: $5K-$10K.

Cash and stock rewards a great and, of course, very generous.  They lose their value as a motivator so rapidly, though, they just don’t make sense as tools for rewarding employees.  Personalized, non-cash rewards, however, are powerful, sticky, and cheap.  They’re not only the best bang-for-the-buck reward option, they’re simply the best option.

2 Comments

  1. I still remember when Viewlogic gave me an Amex Gift Card as a reward – I remember spending the night in Boston and where I went for dinner.  And that was only $100… Another big benefit of these personalized rewards is that they don’t build expectations the way cash bonuses do.  No matter how hard you try to get people to understand that this bonus is *one-time*, they still have the amount in their head when next time comes around.  With personalized gifts it’s more explicit that the occasion and the gift are unique and one-time.

  2. I still remember when Viewlogic gave me an Amex Gift Card as a reward – I remember spending the night in Boston and where I went for dinner.  And that was only $100…

    Another big benefit of these personalized rewards is that they don’t build expectations the way cash bonuses do.  No matter how hard you try to get people to understand that this bonus is *one-time*, they still have the amount in their head when next time comes around.  With personalized gifts it’s more explicit that the occasion and the gift are unique and one-time.

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