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Why ‘Cash is not the King’ when it comes to Employee Rewards

Traditionally, most organizations have followed the principle of “Cash is King” when it comes to employee rewards as a ‘no-brainer’. Cash as employee reward or ‘Cash Award’ is rapidly losing its appeal among a large section of employees across organizations. They are now seeking more meaningful and memorable rewards. 

A research by McCartney and Holbeche in The Management Agenda states that 65% of managers consider non-financial recognition to be a key employee motivator.

A study by Cicero Group has also offered similar results, with 50% of employees believing that non-monetary rewards such as receiving praise from their managers can help in enhancing their trust in their superiors.

What are Cash Rewards?

Monetary Rewards

It is a common perception that cash reward is just cash paid to employees as a token of appreciation for good work.

However, cash awards can take any other form that can be exchanged for actual money without any loss of value. These may include deferred salary, stock options, or bonuses.

Integrate Reward and Recognition with Innovation Efforts

Organizations prefer cash as an employee reward as it is extremely simple to implement as compared to non-monetary rewards

Most organizations feel that employees will value cash more as they can use it in any way they like.

However, employees do not perceive it the same way rendering it less effective than other forms of rewards.

Thus it is not surprising that around 84% of businesses today are investing in non-monetary employee rewards.

Why Cash Rewards might not be as effective?

It is a wake-up call for those organizations that have used this traditional method of cash rewards. They need to realize that it is no longer much in favor of the employees.

Here’s why this once-popular form of reward has become ineffective in modern times:

1. Less Memorable

2. Lack of Social Acknowledgement

3. Lacks Uniqueness and Excitement

4. Tax Liability

Why ‘Cash is not the King’ when it comes to Employee Rewards

1. Less Memorable

Clean Slate

When employees receive cash rewards, they are likely to forget about it as soon as they spend it. Cash rewards are unlikely to create lasting memories for the employee especially if the reward amount is not high.

On the contrary, a non-monetary recognition system such as a personalized gift, a scuba-diving trip, a sponsored family vacation, coffee with the CEO, or even a hand-written ‘Thank You’ note is likely to create longer-lasting and pleasant memories for the employees.

Pictures or ‘selfies’ clicked during the activity and shared on social media will make it even more memorable.

Whereas a cash reward might just stay hidden in the employee’s payslip; lost and forgotten by the employee soon.

2. Lack of Social Acknowledgement

Why switch from In-house Employee Recognition Platforms?

One of the biggest drawbacks of cash rewards is that they do not provide the social recognition that employees desire.

Even though the award announcement is shared on social media, it cannot replicate the impact of sharing the entire experience of a non-monetary reward such as Coffee with the CEO or a paid vacation, complete with pictures and videos.

Even a picture of the employee receiving a check from the management is likely to receive far fewer ‘likes’ and ‘comments’ on social media as compared to pictures of an employee enjoying a trip sponsored by the organization.

Since social recognition means a lot to employees today, cash rewards do not score as high on this point.

3. Lacks Uniqueness and Excitement

Customer Experience

Cash awards might not sound unique or different in any way from receiving an incentive or bonus. They do not make employees feel any different from their peers, who might have been awarded similarly in the past.

This impersonal and undifferentiated nature of cash rewards makes it feel like a mere formality for employees. Good performers might be looking for something more meaningful.

Consequently, cash awards might not have the desired impact on employee motivation.

On the other hand, employees might perceive non-monetary awards as more valuable as they seem to be more ‘thought-through’, ‘personalized’, and ‘meaningful’. 

Employees tend to appreciate efforts made by the organization in arranging for the reward and not just the monetary value.

4. Tax Liability

Seek Funding For The Program

As per taxation rules of the country, all cash rewards might be liable for tax deduction at source. This impacts the actual value of the reward received in hand.

On the contrary, non-cash monetary awards might enjoy an exemption from taxation up to a certain limit

This reduces the impact of taxation on the actual value of the reward received by the employee.

Bottom-line

Traditionally, regarded as a ‘no-brainer’ form of reward, cash rewards are falling out of favor of employees, reducing their impact on employee motivation.

It is time for organizations to move away from the tradition of cash rewards and consider adopting more diverse forms of non-monetary rewards that are likely to be more effective in driving employee motivation.

Sagar Chaudhuri

Lead author: Sagar Chaudhuri, the Co-Founder and CEO of HiFives. He is an HR Tech Evangelist with over 25 years of corporate and entrepreneurship experience. In the past, Sagar has worked with companies such as Genpact, Infosys, and ICICI Bank, in leadership roles. He has an engineering degree from IIT Kharagpur and an MBA from IIM Lucknow. Connect on LinkedIn

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HiFives is a global employee rewards, recognition and engagement SaaS platform that enables organizations to digitize, automate and transform their employee experience. It is used by 100+ large enterprises, small businesses and startups in manufacturing, retail, technology, financial services and media, across 25+ countries.