There are many reasons why cash or cash equivalents are not recommended as an incentive reward option (there are dozens of articles and research that addresses this), but this document will focus on the top six: Entitlement, Escalation, Branding/Memory Value, No Disguised Value, Right Brain/Left Brain, Competition Focus.
1) Entitlement: Once you offer cash as a reward, it is very difficult to take it away. People’s beliefs are established that if you could pay it to me then, then you can pay it to me now. That works out ok if you always plan to run incentives, but if budgets are ever cut or new management changes the direction, you are setting the company up to hear negative feedback from the participants when the cash is taken away. It is almost like taking away their salary or commission, and you can imagine how people would react to that. On the other hand, merchandise and travel have the opposite impact. Those awards are clearly established as a “perk” of sort. There is a clear linkage between the performance you want and the reward they get. It can be inferred by the participant that the rewards are performance based and there is no confusion with compensation or commission. In addition, the best incentive programs are built to “work themselves out of a job.” In other words, merchandise and travel programs that do not carry the entitlement burden, build “habit strength” (getting people in the habit of doing what you want them to do). Once habits are established the incentive can be fazed out or better yet, focused on to other business objectives. With cash or cash equivalents you are stuck with always paying for performance and any new business goals will cost you additional.
2) Escalation: Once you offer cash as a reward, it isn’t only difficult to take it away, but people want more. Over a period of time, people expect you to increase or escalate the amount of the award payout for the same task. Any type of incentive reward is subject to the escalation issue (including merchandise and travel), but as stated above, merchandise and travel rewards are strategically positioned as perks and that comes along with a time period. So before an escalation need arises, the incentive allocation could shift to new objectives. You aren’t so flexible once you start with cash.
3) Branding and Memory Value: One of the most beneficial lasting impacts of an incentive program is Memory Value. This is the association between your company and the reward. When you have a custom branded web site or award catalog exclusively focused on your company, the association becomes strong and memory value is established. When someone asks your performer, “That’s a great new TV, where did you get it…” they will reply “from my company’s incentive program.” When cash is used, and the same question is asked, the reply is likely, “I got it at Best Buy.” And they are right, because that is where they got it. They took the cash and went to Best Buy and paid for it. They likely used the check like a coupon, because they had to add their own cash for the added cost and/or taxes. Your program is not about building brand recognition for companies like Best Buy, rather it is about your company. With cash as a reward option you are destined to brand someone else, with your branded redemption catalog and web site, you are destined to brand and promote your company.
4) No Disguised Value: $1 = $1 with cash. There is no promotability with that. There is no increasing the perceived value with that. Even if you convert the payout to points, simple math calculates it back. Merchandise and travel rewards use points and the actual value is disguised. People are not as likely to make the calculation to the reward value to the dollar value as they do with cash. This is critical when you are trying to hype a program and focus on the business objectives not just the rewards.
5) Right Brain/Left Brain: Simply put, cash is a logical, non-emotional left brain function. People tend to perform better when the right brain is engaged and they get emotional. What emotional means in this context is they pick a reward (TV, DVD player, a trip, etc) to work toward. They actually envision themselves using the product or being on the trip. This is powerful because they set goals for themselves. With cash, people typically don’t make the connection to what they are specifically going to buy with the product and that looses an important inventive element.
6) Competition Focus: Once your competition knows what you are offering in cash value, it is easy for them to one-up you. Now you get into an incentive war of who is paying out more. Talk about escalation issues! When you take the focus off of the award value and focus on what surrounds the reward (like a cool web site, desirable rewards and destinations, creative marketing and promotion, etc.) you will leave the competition incentive program in your wake.