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Picture this. As part of the Human Resources team in your company, you have been asked to create an incentive structure that could prompt employees in the sales department to perform better. You can offer either cash or non-cash incentives. Which would you choose and why?
Cash vs non-cash
Most HR professional would opt for offering non-cash incentives. The argument would be that non-cash incentives, such as paid vacation to an exotic resort creates lasting memories in the employee's mind - something they can share with their fellow employees and friends. Cash will most likely end up being used for an everyday activity like buying groceries. The incentive, hence, loses its identity, The argument is, indeed, a powerful reason to offer non-cash incentive.
Now, consider a different perspective on supporting non-cash incentives. It is a fact that the cost of living has increased significantly in the recent past. A loss of income could render us incapable of maintaining our current standard of living, let alone covering our monthly costs.
This risk comes from two factors. One, increase in living costs are typically more than increase in income levels - we are paying more each year to maintain similar living standards. And two, the labour market is no longer sticky - our jobs are no longer guaranteed, as they were in the past. What does this mean for incentive structures? We mostly live within our means, trying to satisfy our costly necessities and rarely indulging in luxuries without feeling guilty. Providing non-cash incentives removes this guilt and gives the individual permission to indulge. Offering a choice between cash and non-cash incentives could spoil the party. For then, the individual would typically choose cash, which they can use to cover their high living costs.So, offering only non-cash incentive would cause a positive reaction; for the employee, having tasted luxury, is likely to further improve their efficiency. Besides, sharing their experience with fellow workers could tickle their urge to experience the luxury for themselves, driving them to work harder too!
(The author is the founder of Navera Consulting. He can be reached at >enhancek@gmail.com )
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