Motivating Employees With Cash or Gifts?
Imagine that you worked for me, and as your year-end bonus, I offered you a choice between $1,000 in cash or an all expense paid weekend in the Bahamas, also worth $1,000.
Which option would you chose? If you are like most people who have answered this question, you would take the cash. After all you might not like the Bahamas and you can decide for yourself how to best spend the money. Or maybe the best thing for you would be to spend a weekend in Jersey beach and use the rest of the money to buy a new ipod.
But is this really the best decision? It seems to be financially efficient, but would it improve in any way the employer-employee relationship? Would it increase your happiness with your work, your loyalty? Would it make me a better employer?
I suspect that in this case what seems to be financially efficient might in fact not be the best option. I suspect that your enjoyment at work would be higher after receiving a gift than after receiving a cash bonus. That the trip to the Bahamas might increase your loyalty and your willingness to stay late at work one day to help meet an impending deadline.
But this doesn’t apply only to gifts. Would you prefer $15,000 in cash or for your employer to take care of your health? Again, you might prefer the cash under the notion that you can choose better how to spend it, but I suspect that this will change your enjoyment, motivation, and loyalty!
Gifts and employee benefits seem, at first glance, to be odd and inefficient ways of allocating money, but once we understand that they fulfill an important role in creating long-term relationships, reciprocity, and feelings we might try to further increase our reliance on them.
These are interesting hypotheses. I think I would prefer the bonus in cash, because that’s a pure and controllable pleasure, whereas a trip necessarily involves some inconvenience in scheduling, traveling, childcare, etc. And I vaguely feel some pressure that my employer would expect me to return from the trip having enjoyed it completely. I have no problem feeling loyalty and happiness over receiving a cash bonus.
But for health benefits, I don’t feel the same way. I like that my employer takes care of those, and if I yielded to the temptation to take the $15k, I probably wouldn’t use it as well (even assuming I could buy health benefits individually at that price that were as good as my employer could). Health benefits and retirement benefits may not be “enjoyable” per se, but definitely inspire loyalty in me.
Perhaps this relates to Herzberg’s hygiene-motivator theory?
I think firms have an issue regarding employee benefits in that staff generally undervalue them. Consequently many companies now provide a \’total reward statement\’ that monetises their benefits. Mine add around 15% to my salary. While I now appreciate the benefit more, I would still rather have the money and choose the best way to allocate it for me (which wouldn\’t be in the current configuration of car, pension and healthcare). By doing this the company would however lose the loyalty benefits that I currently feel for them \’looking after me\’. I guess a better option is \’flex benefits\’ which give employees a budget for these employee benefits and allows them to alloacate as they wish.
Interesting idea.
How does the relative emphasis on healthcare correspond to people’s attitudes to their nation across countries that provide national health services like Canada & Europe versus those that don’t like the US?
To be clear, the question is not whether lavish gifts or cash create feelings of warmth + reciprocity – they sure do – but why lavish gifts are sometimes much better than cash. To me it’s clearly mental accounting. Say I’m expecting a bonus of 5-10k and I’m used to spending $50 on a bottle of scotch: I am much more moved by 6k and a bottle of Blue Label than by 6.5k (sadly, the gap is probably at least this big).
The problem that arose in my wall street years was when everyone got a bottle of vintage dom with their cheque and *that* became the reference point… ah, for the good old days.
I’d be really mad at my employer for wasting money on a trip to the Bahamas that I didn’t want when I was being underpaid in the first place.
I think it’s time to start looking for a new job.
I truly believe that vacations in places like the Bahamas are my cure to work and related stress. If I am not able to go to this type of location for vacation, I will cancel my vacation until I am able to get away.
This is a bonus I could appreciate and if I got the $1000 in cash, it would probably be spent on some perishable goodies. Even if I invested the money I might not be around to enjoy it for myself. I would rather have the fond memory of a relaxing paradise-like spot that would definitely add to my employee-satisfaction.
“Heckler” aka Dr. Deborah Frisch, is an internet troll, ex-convict, and failed Decision Scientist.
Everything you need to know about her slide into madness is here:
http://donthiredeb.blogspot.com/
and here:
http://debfrischtimeline.blogspot.com/
The company I work for used to have an \
The company I work for used to have an “employee only party” in August and a “holiday party” in December. They discontinued the employee party saying they would use the extra money for the holiday party. Even though the holiday party is more lavish now, many of us feel the loss of “family” and appreciation we felt with the employee party.
We also used to get a profit sharing check every year. Now, the new health care benefits we have made it contingent on depositing that check in our 401(K) accounts. We would much rather have the check.
So, in one instance, we really prefer the “gift” of the party and in the other instance, we really prefer the actual money.
Go figure.
To pick up a theme of Predictably Irrational, we might not know what makes us happy, so we might blow the cash reward on something we dislike. Meanwhile, our boss might have better insight, and realize we need a trip to the Bahamas.
Also, humans are wired to share, or remember shared experiences, so a shared office trip to the Bahamas might be bonding like a late night sharing of a bottle of wine is bonding. But sometimes familiarity breeds contempt, etc.
Where I work they give us gifts based on years of service, the gifts remind me of the junk I picked out from a Blue Chip Stamp catalog as a kid( for those old enough to understand). The gifts are such a joke that they make me feel the market norm disgust I would feel if offered a small amount of money.
Wait a minute, I feel that when I look at my check?
By the way, I’m a Firefighter in a very rich city.
And like the Border Patrol mentioned in your book, I no longer take the big risks I did in my youth, my delusional youth, where I thought the city cared for me as I cared for it.
Maybe I\’m more cynical than most, but one of the reasons I\’d prefer cash is precisely because I\’d view the Bahamas trip as an attempt to manipulate me via reciprocity.
In today’s healthcare system the employees, although they are professionals, are in a situation that resembles that of the fire fighter. It seems to be a one way loyalty.
The service gifts are a joke as Matt mentioned.
If, in fact, there were gifts of any other kind the employees at my facility might jump at the chance to get one of them.
Many of you refer to the rising cost of your healthcare coverage. If it’s any consolation to you, we have some of the most expensive group coverage out there and it pays very poorly, leaving a huge bill for us to cover.
I recently had a test. The total bill was just over $1500. After the insurance paid I had nearly $500 left to pay. Incidently I pay for the highest coverage offered.
I would take the cash. The “all expense paid” vacation wouldn’t really be “free”. In my my experience, those kinds of “gifts” from employers don’t contain any kind of reimbursement for childcare, pet care (e.g. kennel or pet sitting), and other incidental costs I would incur in order to use the “gift”. Spending my take home pay in order to attend a vacation at a place and time of my employer’s choosing wouldn’t seem like a benefit to me.
P.S.- Thanks for the heads up on the nutty ex-professor largenfirm. Hopefully her trolling here will be brief.
Dan, thoughts on Microsoft’s new program to pay people to use their search engine? The price of using M$ search has now gone from “Free!” to “Even better than Free!”
A number of comments mentioned the word ‘sharing’ which is a critical side-benefit. So is ‘recognition’ of the achievement.
I still recall going on a corporate prize trip on the Orient Express with my significant other. Even today we still ‘share’ those memories, photographs and talk about those corporate times. As for cash bonuses, I rarely associate them any lasting memories or experiences.
Hi Dan,
In your book you refer to the difference between market norms and social norms. It all seems very clear.
still: i just found this article saying that praise activates the same reward center in the brain as cash rewards do.
http://abcnews.go.com/Technology/story?id=4711626
It is interesting how nobody has thought through this from the point of view of the employer.
First, as an employer I would never offer the option of cash versus the discretionary trip – particularly if the intention is to build morale. It creates a dilemma that need not/should not exist. The cynics (or those who are paranoid) do not have to go. (Thereby providing an additional signal, if I really needed one.)
Second, the offering of health insurance is largely driven by the buying power of a group and the tax code around what is and is not deductible and, therefore, the effective cost of medical care to the individual. We do not offer dental care because it is a bad insurance buy.
Third, there are equity issues that tend to force changes in what benefits are offered. Is it fair to singles when you offer family medical coverage? These are difficult choices especially when you have a small company.
Other things being equal, our policy is to provide cash rather than benefits. For example, when we recently modified policies to reduce the insurance cost we gave the employees back the cash savings.
At this point I would be grateful for almost anything. It’s been 15 yrs since I worked for a company that recognized employees.
Wow! As financially tight as I am right now…and the low-end of salaries based on my job position…I completely disagree with your statements on loyalty. If my employer would raise my salary even by $1000 I could afford some basic needs….such as buying a pair of glasses to replace the cracked pair going on 4+ years, buy my monthly prescriptions as necessary… I would be more than loyal, as i already am, but extremely grateful.
The money please. Maslow’s hierarchy
Reaction to dheath
Despite Microsoft’s reputation I suspect that paying people to search is going to set a negative image and reference point for this service and this will create a long term barrier for its use
The range of replies here suggests that the original proposal is probably too limited in scope. For many people, a $10 bonus would mean a great deal, while for others, dheath, $6000 seems like a normal amount. People sometimes find it hard to extrapolate from the theoretical to the personal. Perhaps if the proposal had used a percentage instead of a dollar amount….
On the other hand, I have seen no comment on the subject that occurred to me right away: I would much rather my employer offered me a bonus that thoughtfully reflected my needs: if she knows I don’t earn as much as I’d like to, I’d like her to offer me the cash to help make up for the deficit. If she knows I need the time off because work has been hectic, I like her to offer me the time off, and sure, help with expenses so I can actually vacation and not just stay home for a few days. I appreciate Bernie’s comments regarding the unnecessary dilemma that making the employee choose would generate.
Bottom line, as I see it, is that people want to *matter* to those around them. If I think my employer is trying to manipulate me, like Doctor Jay says, then no “bonus” will be seen as generous or welcome, because the underlying trust obviously doesn’t exist. Even an employer who pays minimum wage can make employees feel valued, and even a six figure salary won’t make up for a boss who doesn’t give a damn about who works for him. Either you *matter*, in which case, your boss does what she can to make you feel it, or you *don’t*, in which case your boss probably won’t make an effort to offer a bonus you would actually appreciate.
Another research, Ran Kivetz has studied this and came to the same conclusion. However, if presented differently: you gave people a chance to win $1,000 for doing something (like filling out a form while in a store) and you gave a separate group of people a chance to win a trip to the Bahamas valued at $1,000 (same store, different day). Which contest gets the best results. According to Kivetz, the Bahamas wins. Even though people would choose cash over a trip, in isolation the trip (Kivetz calls it a hedonic reward) actually more positively motivates behavior.
To much thought process goes into the obivious soliution let the Adult free thinking employees make that decision on what is best for them after they have made the decision sent out a memo asking them will this make them a better employee,more loyal etc. LOL
I wonder if my employer would mind if I skipped a week of work, but sent him a bottle of expensive champagne and a trip to the Bahamas instead..? Could I just send gifts and never show up..?
While I would appreciate the trip to the Bahamas to be sure, I am used to working for employers that don’t give anything, I would want the money.
I may be jaded from working in my current industry but I believe loyalty needs to be to yourself and not to a company.
It does raise an interesting question about how companies can build loyalty but the deep down honest answer in my opinion is that they can’t.
This isn’t the days of Mom and Pop companies that allowed people to work there forever and understood personal intricacies. This is the era of the corporations that are only interested in their bottom line which in turn makes the employee dwell in that concern as well.
Sorry if this comes off as pessimistic I am just being honest. Love the blog.
A bonus in cash may go away in a blink of an eye: you may lend it to your brother-in-law, pay an old debt with a neighbor or even fix something in your car. My point is: it will not always provide you with a joyful and memorable experience. It might fade away very quickly. A trip, on the other hand, will probably be imprinted on your memory for a long time.
Interestingly enough this sort of question came up with my husband’s company.
Upon production of receipts, the company would reimburse its employees for water and energy bills up to $2,000 in each financial year. A few earnest souls decided that this reimbursement might encourage employees to waste water and energy – highly unlikely for the vast majority of people, but never mind. These same earnest souls proposed that, instead of this reimbursement, the company offer holiday vouchers to the value of $2,000. Fortunately the idea was canned and the benefit has now been tweaked so that employees receive a cash benefit for the amount not claimed by the end of the financial year.
The problem with offering holidays rather than cash is that some employees desperately need the cash for basics. The number of working poor seems to be increasing and it’s hard to predict who the working poor might be simply by their salaries because some people have very costly hidden expenses eg medical.
An enforced holiday in the Bahamas would be the ultimate in stress and depression if you couldn’t afford a decent swimsuit etc and a few extras so you could enjoy it. I’d probably spend the weekend in the hotel room worrying about how the electricity would be cut off by the time I got back home.
Awesome posting man!
You are a great blogger. I like your work. Truly you are a genius.
Keep up the good work Man!!
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