Cash vs Non Cash Incentives
Will incentive practitioners ever stop arguing the pros and cons of cash and non-cash incentives?
After 15 years in this business, I still hear the same debates and chestnuts that I heard when I started in the late 90s
“Cash is king.” “No! Noncash incentives are much better motivators”. “But people prefer cash to gift cards,” “people aren’t motivated by money” etc.
I believe this is a phony war and that sales organizations need to focus their energy on properly integrating non-cash incentives & recognition programs into their sales incentive compensation strategies. BOTH reward types should be used to drive a variety of sales, behavioral and people orientated outcomes.
There are tonnes of articles on the web on the pros and cons of both reward types. But the fundamental way of thinking about cash + non-cash is to be clear simply about how you define the purpose of the two core components of your sales program:
- Incentive Compensation
- Rewards, Awards & Recognition (RAR)
Incentive compensation is the “pay for performance” piece. This is a CASH strategy. Instead of paying someone a fixed salary – a portion is “at risk” The at-risk amount is managed by the “sales compensation plan” (aka pay plan, aka commission plan, aka SIP). The purpose of your comp plan is to tie remuneration to sales performance fundamentally. Any attempts to use non-cash as a “top-up” in this area are misguided and inefficient.
“RAR” is the noncash piece, and it should be used to complement the incentive compensation plan.
- Rewards are the merchandise, experiences, events, gift cards
- Awards are the formal trophies or award programs (sometimes you might attach a reward to an award)
- Recognition is the unstructured but frequent and effective recognition from management and peers
RAR can bring additional motivation and alignment to the program that your incentive comp plan can’t.
For example, an invitation to the annual sales achievers conference for people who exceed their yearly target can have an enormous motivational impact on nudging your bell curve a few percent rights of 100%. It’s an engaging reward that an individual can’t buy, there’s heaps of peer and manager recognition, and you get a trophy to remind you of your achievement. Your incentive comp plan will, of course, reward people for achieving and exceeding the target. But a well-designed RAR program can more cost-effectively drive the bell curve effect.
A word on third party (external) channel incentive programs
Using the above definitions, you need to be clear about where your product /service fits into THEIR sales incentive programs. Typically, you will need some sort of CASH incentive arrangement in regards to rebates, commissions or a wholesale price structure. Assuming this in place – you would be nuts to bring another cash incentive over the top of this to drive salespeople in the channel. This is where you need to employ effective “RAR” strategies.