9 Ways to Tell When You Compensate and When You Reward

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Everyone who manages people would love an answer to this question: “When do I compensate employees and when do I reward employees?

Most managers and HR professionals have debated this question at one time or another and quickly discovered that there isn’t a simple or all-encompassing answer.

There are times when cash compensation is the right approach and there are times when a non-cash reward such as merchandise, travel, a day off with pay, a team party or family picnic may be the answer.

Here are nine (9) factors to consider when deciding whether to focus only on cash compensation or when to add a non-cash award component to your employee total rewards plan.

Focus on cash compensation when:

1. Your employees are mostly lower wage workers who struggle to make ends meet and live paycheck-to-paycheck. These employees likely can’t afford to pay the additional taxes on a non-cash award and truly are motivated by money. Additional cash can mean being able to pay the rent.

2. You don’t have any specific behaviors or actions you want to call out to employees. The nature of the work is rote and no special “above and beyond” performance is needed or expected. All you expect is for employees to do is show up, complete the task and collect their pay.

3. Your workforce is mostly temporary, contract or seasonal employees and employee loyalty doesn’t matter to you. If you mostly hire short-term workers, then cash may be the right motivator to attract the best possible talent for a specific job or project.

4. Your program is structured so cash bonuses and cash rewards are easy to earn year after year. If your workers have come to depend on bonuses to make ends meet, then keeping employees satisfied may require you to maintain the cash payouts until you can ease off the existing program and introduce another.

Add non-cash reward opportunities when:

5. Your employees receive wages or salaries that ensure an adequate to high standard of living. Once basic needs are met, additional cash does not necessarily fulfill the need for job satisfaction. Non-cash awards become viewed as a special gift.

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6. You want employees to focus on key values or actions like innovation, process improvement and team work. Employees are more likely to become engaged and want to try new things when they believe their work is noticed and rewarded with a special item or event.

7. You want to retain top talent. Top talent is always in demand. Not feeling valued and not being recognized within the company is a key reason many employees quit. Tangible awards offer that sense of feeling valued and special.

8. You want to set standards of performance for other employees to emulate. Presenting non-cash rewards in a public forum is a great way to define “model” performance for everyone.

9. You want to focus attention on a specific situation for a short-time. If you need to drive sales of specific product or get employees to support a new process, product launch or system integration, for example, tangible rewards are viewed as a special gift for special performance. They do not become an expected event.

Every organization has unique compensation and rewards needs. Using these factors will help you make the right decisions to meet your employees’ needs.

For more than 25 years Tim Houlihan has been developing and delivering behaviorally-based marketing and sales solutions. Along the way, it has been his ongoing curiosity of human behavior that has led to those solutions. As the Vice President of Reward Systems at BIW, Houlihan is responsible for leading the development of innovative reward systems based on principles found in behavioral economics.

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