What motivates employees to perform better: cash or a flat-screen TV?

What would motivate you to perform better at work: a flat-screen TV or a cash reward of equivalent value?

Alan Webb, Associate Professor, School of Accounting and Finance, University of Waterloo

A University of Waterloo professor says the relationship between rewards and performance at work is a complex one.  Alan Webb, an associate professor in the School of Accounting and Finance, says managers who want to design incentive programs for their employees have several issues to consider.

In a recent study, Webb examined how the type of reward (cash versus tangible) influenced the difficulty of the performance goals employees selected for themselves; how committed they were to their chosen goal and, ultimately, the effect on overall performance.

The study, which involved employees at a call centre for a large financial services firm, finds that employees eligible to earn tangible rewards for goal attainment, such as coffee makers, televisions, bicycles, etc. were more committed to their chosen goals than employees eligible to earn cash rewards of an equal value.  “It seems like the people who chose cash didn’t feel like they’d be losing as much if they didn’t reach their target,” says Webb. “A television is more memorable. You use it every night and it might induce you to be more motivated and to work hard.”

“It’s easy to see how a tangible reward might be more exciting than the extra cash that might go toward paying for things like the kids’ dental bills, adds Webb.

But, in the big picture, employees who went for the cash reward actually performed better than their colleagues who went for the tangible rewards.

The reason, says Webb, is that employees eligible to earn cash rewards chose more difficult goals to attain. The employees who took part in the study had three different performance goals to choose from ranging from easy to difficult.  So, in the final analysis, the workers provided with cash rewards performed better than their colleagues eligible to earn tangible rewards, who on average selected easier performance goals.

“While they were more committed and more engaged, the folks who chose tangible rewards became more risk-averse,” explains Webb. As a result, they chose less challenging goals in an effort to ensure they earned their rewards.

The study, a unique example of how behavioural research can help inform managers responsible for designing incentive programs, suggests that if you want to increase productivity with tangible rewards changes may be needed at the goal-setting stage. “If you want to use tangible rewards there would need to be some intervention to move employees away from risk-aversion,” says Webb. Counseling, or some kind of discussion with a supervisor while choosing their monthly goals, would be a suitable intervention, he adds.