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.