Most organisations have a range of benefits that may have been built up over years, often with little strategic intent. But it is worth standing back and questioning quite why we have each of the benefits we do in our organisations. Other than for a legal requirement, such as paid holidays, I suggest that there are only five reasons why an organisation chooses to provide particular benefits to its employees:
- Market need: a benefit is needed to compete effectively in a particular market; e.g. executive stock
- Tax efficiency: a benefit that has tax and or national insurance savings over cash; e.g. pension
- Organisation provision: the organisation can provide the benefit much cheaper than can an individual; e.g. PHI
- Moral: the employer believes that they have a moral responsibility; they may also consider a reputational risk if the benefit is absent; e.g. Life Assurance
- Organisation value: there is a direct value to the organisation as well as to the employee; e.g. private medical insurance
One way or another these are about delivering value to the employee and the organisation that cash does not. We always need a balance between taking a total reward approach – to maximise overall value – and distinguishing separate elements of reward which are there to do different things.
This issue is similar to one to consider in using non-cash reward. A study that offered either cash or non-cash incentives of an equivalent value found that the group who received non-cash awards performed twice as well as the group who received cash. But the cost was the same. We all like to receive presents; there is something about receiving a tangible award that trumps cash. But there are four main reasons for using non-cash awards over cash particularly for recognition and incentive programmes:
Differentiation - non-cash awards differentiate a recognition programme from pay. I was consulting with an organisation who paid recognition awards through payroll. The managers’ dominant view was that the important part of the process was the pay. The great majority of recipients, on the other hand, said that the most memorable and important part was receiving the letter of thanks recognising what they had done.
Memory value – the effect of non-cash awards is longer lasting than cash. It is sometimes said that cash is a motivator for as long as it takes before it is spent. In contrast, every time a non-cash item is used or enjoyed the recipient may remember why and how he or she earned it.
Perceived value - the perceived value of a non-cash award can be much higher than the actual cost, so that a non-cash award is valued more highly than cash of the same value. It may be that the organisation can source an award much cheaper than the individual could. This may be because they are buying in bulk or can negotiate a better deal with a supplier or through a third party.
More personal - a non-cash award can be tailored to the needs and interests of the recipient, showing a greater amount of thought than a simple cash sum would reflect. We only need to think about the difference between receiving a birthday present of a cheque or a really well chosen gift.
Cash, benefits and non-cash reward all have their part to play in helping engage employees. But they all need to be thought through carefully to maximise impact.
© Rewards Consulting Limited
Michael Rose is an independent Reward Consultant through his company www.rewardsconsulting.co.uk. He has worked in reward management for over 30 years and was previously the vice president of the CIPD. He has had many corporate roles, the most recent being with Aon where he was director of Reward and Recognition.
His second book, A Guide to Non-cash Reward, was published in February 2011 by Kogan Page.
