Tuesday, February 26, 2013

Cash Incentive Awards Are King! Right?

Well, it is according to 360 Incentives, a company that specializes in the technology to manage cash incentive programs.  I assume 360 is a fine and upstanding organization, certainly well within their rights to their beliefs.  But, from our viewpoint, we don’t really think it makes good business sense to take such as myopic view of a topic like cash or non-cash awards.  This subject has been debated and argued for years and years and the pros and cons will always be discussed when considering any kind of incentive program. 

To start, the answer is Yes and No.  It kind of depends on what your objective is and a myriad of other details.  Let’s open up this conversation a bit by looking at a recent post from 360 entitled Cash vs.Rewards Is The Chocolate Vs Flowers of Sales Incentives.  Kind of catchy huh?  It caught my eye in Google Reader, and thus this post.  From this catchy title they moved directly into a question they ask their prospects … “do you find that people prefer cash or rewards as sales incentives?”   I guess that cash isn’t a reward to them….which is partly true as most folks see it as compensation.  So a better question might be…”which reward do we think is best to motivate behavior change and achieve results?” 

In any event, their research concluded that folks want cash, 99.3% prefer it.  Now that’s some conclusive stuff isn’t it? Heck we could have saved them lots of time, the incentive industry has known since its inception that cash is what anyone will tell you they want when you ask that question.  Problem is, that’s not necessarily what will motivate them to produce more!  So what is?  And how do you structure a program to get results?  These questions and more are what the incentive industry has been answering for close to a hundred years. 

Simply put, cash compensation forms the contract that brings people to work; it doesn’t do a thing to motivate them to perform well while they are on the job.  Many other stimuli do.  While we’re on the subject, I’ve never seen a sales compensation plan that didn’t have some kind of incentive or bonus portion that allows the sales force to make more money, sometimes an unlimited amount.  Assuming these plans are structured properly, what makes 360 think that adding more money to the equation will increase the results?  They have that opportunity from day one.  If it works so well, why do they have to have another incentive program in the first place?”

The examples of real life sales reps noted in the blog are frankly a little silly.  The consumer electronics rep didn’t like the award program because he already had and iPad and didn’t’ need a second one.  But that isn’t a reason to use cash; it is a reason for the company who ran the program to use more options as rewards.  Single item programs never work very well for that reason.

The next example was for “Jim, who says that about 60% of his income comes from sales spiffs. Now, that's going right to operating my home, paying my mortgage and just doing the family thing." Sounds like a compensation program to me.

Without more details on the case study they present, it is unworthy to be called a case study.  If we had presented that kind of analysis to clients, they would have laughed us out of the room.  Fact is that there has never been a creditable empirical study done on what works best, cash or non-cash awards.  There’s been a lot of research done over the years by the incentive industry, but nothing that points to either award conclusively.  I’m sure my readers can find some that may look credible, but we’ve seen about all of them, and there’s always a flaw.  One however that was particulary interesting was from the White House Conference on Productivity.  It showed that cash and non-cash produced about the same results.  Only difference was that it took 3 times the cash to produce that same result as non-cash.  That makes cash programs three times as expensive.  Ergo, my comments on the case study above.

Bottom line is both cash and non-cash have their place in the incentive world.  They will do different things for different reasons; we’ve recommended both when we are in the position to know all the facts.  Understanding the pros and cons of each will help you implement a better program. 

Lastly, we have found that looking at a company’s core competency and key drivers of their sales and profits is always a good place to start when you intend to analyze their position on various subjects.  In the case of 360Incentives, they sell software that runs cash incentive programs.  They charge $80 per internet user per month and $1.25 for every transaction that happens within the system.  I guess if the clients decide to use a reward other than cash, they won’t be in the bidding.  As there are billions and billions of $$$ budgeted in the non-cash incentive world, maybe they should look into providing services for those programs too.

So, is cash really the king?  Maybe, depends.

If you’d like to see a more traditional comparison on using cash or non-cash as awards, please click here.

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