Since the tax breaks for corporations became the law, more than 88 of the top companies in the world have announced their intention to pay one-time bonuses ranging from $150 to $3,000 to each of their employees. Across all industry groups, executives are rushing to pay their workers unexpected bonuses. In total, about 3 million employees are expected to get a one-time lump sum payout.
What’s behind the generosity? Most cite the recent legislation. Others say it’s a payout that’s been a long time coming. For years pay levels have been comparatively stagnant even through workers have been working harder and doing more. Since 2000, just 8% of productivity gains have been returned to employees in the form of wage hikes or higher bonuses.
Whether these new cash windfalls are a result of a corporate tax reduction or are the consequence of companies coming to grips with a more competitive labor market, one question begs to be asked; are one-time cash bonuses the best investment businesses can make from a motivational perspective?
Make no mistake about it; cash is (and should be) the central part of your compensation mix. It’s the primary reason people take a job in the first place and it’s why they continue to come to work. However, today’s salaries don’t historically reflect the contributions employees have been making to the companies they work for. They haven’t even been keeping pace with the cost of living.
But for companies looking to make the biggest impact with these sudden bonuses they need to ask themselves, is cash really the most effective device to use? Here are two reasons to consider using non-cash for unexpected bonuses.
While employers intend for cash bonuses to make a big splash, studies show that non-cash rewards are actually more likely to do so. How so? With a cash payout, people are significantly more likely to turn around and apply the money to something necessary (but not necessarily exciting). In fact, employees are more likely to use new-found money across a variety of “practical measures.” They will pay off bills, buy household items, or perhaps, squirrel it away for a rainy day. In the end, cash gets applied toward things that are considered “real world expenses,” none of which are very memorable.
Non-cash, on the other hand, in the form of gift cards or points that can be redeemed for high-end merchandise or individual travel are more aspirational. As a result, the bonus has a more memorable impact. For people with “satisfactory salaries,” non-financial inducements are more motivating and as such more effective than extra cash might be. For those very reasons, roughly 2 out of every 3 workers say they actually prefer non-cash rewards to money.
2 | Because more cash will be expected in the future
While the emotional impact of non-cash rewards resonate longer with employees, their cash counterparts create expectations that are counterproductive to employee motivation.
When non-cash rewards are utilized, employees quickly make the distinction between “normal pay activities” and special payouts. Employees see cash rewards as extra income. Thus, when an employer lumps unexpected cash bonuses in with an employee’s pay, the new total becomes an employee’s perception of what they make. The sum is perceived as part of their ongoing pay. If an employer doesn’t repeat the gesture in subsequent years, their workers might feel that they are actually earning less.
With an estimated $9 trillion dollars set to be disbursed to their workers, employers would be wise to consider using non-cash rewards.