Beyond Cash: The Value of Non-Monetary Rewards

I can surely say that one of the most enlightening lessons in my career has been to recognize the profound impact and value of non-monetary rewards. I have always been aware that monetary rewards and job satisfaction, recognition, etc. go hand-in-hand, sometimes synergistic, sometimes offsetting each other. What I didn't expect was that, when facing a trade-off, people might favor the non-monetary award even if its implicit value is lower than an equivalent cash prize. I discuss here some examples I have come across and attempt to steelman a case for organizations to further leverage the power of non-monetary rewards.

#management #humanresources #careers #rewards #nonmonetaryrewards #hr #meritocracy #culture

When we think about compensation packages, the first thought that comes to mind is salary and bonus. There are good reasons for that. A salary is the primary reason to have a job, so bills can be paid. A bonus is something to strive for every year, a strong incentive to deliver better performance and results. Monetary rewards are extremely powerful. People might even endure a bad job, with long hours, stressful environments, unfriendly colleagues, bad bosses, etc. in exchange for a stable salary and a potentially good bonus.

In such a situation, what would be the breaking point? How low would salary and bonus have to be to drive that person to jump ship? How much salary or bonus would that person happily exchange for a better job? The answer is certainly not straightforward and depends on a myriad of non-monetary factors and personal requirements and preferences (including cultural ones, more on that below).

Non-monetary rewards can take several forms. The most traditional ones are benefits such as health and life insurance, and perks such as office snacks, gym memberships, discounts, transportation, etc. Companies typically offer packages that match the competitive job environment in their geographies. Given this matching, sometimes there are no significant differences across companies to drive retention. But they are also powerful, and sometimes more valued than their implicit monetary value.

One interesting example I faced was in Canada. Our labor force was unionized, and we had plants in many different provinces. Each plant had a different benefit package. The highlight of these packages was the amount of free beer each employee was entitled to every month.? But this amount varied a lot across plants, from a 24-bottle case (a “two-four”) to multiple cases per month.

One of the objectives in our negotiation with the unions was to standardize this benefit across the country. To accomplish that, we offered a monetary award that was equivalent to the value of the beer. In principle, money is more fungible than a bottle of beer, so that should have been an attractive offer.

But, lo and behold, employees would not accept any decrease in the amount of free beer they got, even if they received more value in money in exchange. Why? Partially from endowment effects (i.e., we give more value to a loss than to a similarly sized gain), but also because working at a beer company and getting those free cases were a source of pride and recognition for those employees in their families and communities.

As a result, it was cheaper for the company to give away free cases of beer than increasing wages. Crazy, no?

Social recognition is a powerful non-monetary reward. “Employee of the month” plaques have become commonplace around the world. But it can take many other forms.

About ten years ago I helped setup a major shared service organization based in India. There were two facets of that experience that really struck me. First, it was the role the parents played in employees' career decisions. Second, it was the pervasive use of special public recognitions for performance instead of a cash reward.

India is an honor-based culture, so reputation takes a higher relative priority in people's pyramid of needs.? It is also a collectivist (or non-individualistic) culture, where individuals are more sensitive to how their personal decisions impact their families and communities.

We quickly learned that approaching candidates' parents and inviting them to visit the company played a big role in increasing the acceptance rate of our job offers, even more than just trying to pitch the opportunity to the candidates themselves. ?And keeping parents engaged also increased the retention rate of our employees.

We also amped up our efforts to publicly and loudly recognize employees on the office floor in front of their colleagues, even if the award was just a special token. We observed that this was many times more powerful than just giving them an extra check.

Non-monetary awards can take several other forms, with different impacts depending on the cultural context of the company and the country of operation. A positive work environment, career advancement opportunities, flexible work arrangements, wellness programs, casual dress codes, etc. can all be used by companies to increase engagement and job satisfaction, potentially even allowing them to be less aggressive on monetary rewards.

One of the most interesting ones are job titles. They can be freely given by companies, but they are highly valued by employees. Titles must be the cheapest form of compensation I have come across. Curiously, many companies are absolutely crazy about controlling and restricting titles (to the limit of automating signature lines in outgoing emails to ensure employees don’t inflate their titles).

Of course it is important to ensure there is some consistency within the company, and to avoid over-inflation of titles, but some of this control is exaggerated. For example, allowing salespeople to have loftier titles can improve the response rate of potential customers (you're more likely to reply to a VP of Sales than to a Sales Manager). Startups know well how impactful titles are to attract, retain and promote key employees with outside parties to raise funds and drive business.

If well managed, non-monetary rewards can enormously increase the job satisfaction and engagement in any organization, improving its chances to retain its employees and reduce the need for higher monetary rewards.? Meritocracy includes both monetary and non-monetary rewards. Fairness and consistency in meritocracy are critical to make the most of these powerful tools, create trust with employees, and promote an ownership-mindset.