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Recognition Awards vs. Compensation

Managers who plan incentive programs often face the basic question, What should we offer as awards: cash, or tangible incentives such as merchandise, travel, and gift certificates?

Proponents of cash incentives argue that nothing is easier to give. Cash is easy to administer, and employees can use it for anything they want without the restrictions placed on other types of awards. If you ask employees, most will say they prefer cash. Almost every study of employee attitudes about incentive programs finds cash on top of the list of preferred awards (see Research) .

It seems that management is listening. According to the results of the Incentive Federation's 1997 Study of the Incentive Merchandise and Travel Marketplace, only 30 percent of respondents said they used tangible rewards in their incentive programs. The rest used cash. Among the survey's respondents, the majority depended upon employee input to determine their award selection.

In contrast, proponents of recognition awards will tell you that cash is a poor motivator, pointing out that it has little "e;trophy value."e; Most people don't want to talk about how much they earn, and the money often ends up being spent on everyday necessities or paying off overdue bills. They'll also argue that cash incentives quickly become confused with salary and bonuses and so become yet another yearly expectation. Try to end the cash program, these experts contend, and you get resentment and disillusionment because, in effect, you've cut their pay. Keep it going, and your recognition investment gets lost in the compensation/benefits equation.

Who is right? You'd think that research would provide a clear set of principles that managers could follow, yet there is little research that answers all of the questions involved.

In an attempt to resolve the debate, B. I. Performance Service Inc., Minneapolis, conducted a study with its client, Goodyear Tire & Rubber Company, in which dealers were divided into separate but presumably equal groups, one offered recognition rewards (B. I.'s catalog and travel program) and the other offered cash.The dealers in the group offered tangible awards significantly outperformed the cash group during the promotion period.An almost identical study conducted by B. I. and Mazda Motors Corp. achieved similar results.

While these study results might give B. I. and the incentive business something to crow about, they fall upon skeptical ears in other quarters. Some people who plan programs prefer cash themselves, making them doubt any research to the contrary. Others argue that these studies merely show the effect of tangible incentives on higher-paid people, to whom additional cash may not make much difference.

Perhaps both parties are right. Depending on your company's goals and culture and the composition of your target audience, both cash and recognition awards may play a role in motivational plans. Both sides are in error, however, if they overlook other factors contributing to motivation and performance. For, in the end, most organizations want employees to be motivated by the desire to excel and advance the interests of the organization. Few want to resort to bribing them regularly with cash and gifts.

Webster defines compensation as "e;that which is given or received as an equivalent for services, debt, want, loss, suffering, etc."e; Clearly, compensation is linked to security and safety, for no one feels safe unless sufficiently compensated to meet their needs.

Recognition, on the other hand, is defined as "e;acknowledgment and approval, gratitude, etc."e;Recognition appeals to the higher levels of Maslow's hierarchy of needs, especially social and self-esteem needs.Herzberg's notions involving satisfaction with the process and end-result of work probably are necessary to tap the highest level on Maslow's scale, self-actualization. At that level, people have a self-sustaining motivation that thrives on continually improving the process of work and its end result.

Even though the distinction between compensation and recognition is clear in theory, most companies get them confused in practice. This occurs because most organizations develop incentive and performance strategies without determining whether they want to compensate employees or recognize them.

On one issue, there is no debate: Cash is the world's best form of compensation. Ask any employee what they want most in return for their work, and cash will be the answer. Try taking cash away entirely and replacing it with recognition awards, and you'll have a revolt on your hands. When a Tennessee-based auto-parts manufacturer tried to reduce overtime pay with an incentive program that offered merchandise and travel, union employees started wearing T-shirts printed with a message taunting the program. Lesson: When you want to compensate people for their work, look no further than your checkbook.

Recognition is a trickier issue. In most western societies, cash rarely is accepted as a means of recognition. Winners of awards in sports, business, and science often get cash awards, but when they attend the awards dinner they receive merchandise, travel, trophies, and public expressions of gratitude as well. Likewise, most people don't give cash to express thanks but attempt to choose tangible expressions of gratitude that are more personal. In other words, the currency of recognition is almost always anything but cash.

That distinction helps clarify the debate between cash and recognition awards awards. If your goal is to compensate people for extra performance, offer cash. On the other hand, if your goal is to recognize people and express thanks for performance, consider something tangible that has staying power.

Few companies consistently poll workers about corporate objectives and policies, yet many leave the critical choice between compensation and recognition up to employees. Surveying employees about their choice assumes that you will get the best performance out of employees if you give them what they want.

As the song says, it ain't necessarily so. Furthermore, you could fall into the trap of having to bribe employees to achieve your goals. Since cash has a material impact on people's concern for safety and security, its use must be carefully considered as an award for special performance. Cash works best when employees have reason to expect that they can earn the same amount the following year if they work as hard. If employees receive a generous cash bonus one year with no hope of getting it the next, many will feel as if they've taken a pay cut.

With recognition, however, the objective is to express thanks for exceptional performance and to create role models throughout the organization. While employees may not want to talk about their $5,000 bonus, they'll gladly boast of the recognition award they received. Because recognition, by definition, comes as a result of exceptional performance, it is easier to position it as a one-time event that may or may not be repeated. And, since the award probably won't be used to defray living costs, there is a better chance that employees won't feel cheated the following year if they are unable to qualify for special recognition.

Caution: Whatever your goal, your program will become addictive if too much emphasis is placed on the recognition award instead of on the inner satisfaction that employees should experience with accomplishment.

Making the distinction between recognition and compensation does not address all the issues. Careful consideration should also be given to the makeup of your audience. If you're trying to get low-paid workers to improve their performance, you might consider addressing compensation issues before offering recognition awards. According to Maslow, people cannot move toward self-esteem and self-actualization without first meeting their physical needs. By this, one might conclude that cash makes the best reward for low-paid employees, but it isn't that simple. If your goal is to maximize output continually, you must decide which of two strategies makes sense for your organization. The first is a pay-for-performance plan that gives the hardest working employees the ability to make additional money every year. The second is a recognition program built around recognition awards that express gratitude to top producers or to workers who have improved their performance significantly during the year.

Cash is an issue in programs for higher-paid employees, too, but here you are dealing with people who are at, or near, the summit of Maslow's pyramid. There's a good chance they have all the money they need, so they may respond only to extraordinary gifts or travel opportunities or to special levels of corporate recognition, such as the President's Club or the Chairman's Circle.

That is why many incentive programs aimed at higher-paid individuals almost always include carefully selected recognition awards. Higher-income people can buy the material goods they want, but money cannot buy corporate recognition and self-esteem.

If all you had to do to motivate people were choose between recognition awards and cash, your organizational problems would simple. Unfortunately, Maslow's and Herzberg's theories as well as practical experience suggest that motivation and performance are more complicated than that.
Also involved are:
Clear goals linked to organization objectives. Your target audience can work as hard as possible, but it won't do any good unless people perform necessary functions that bring the organization closer to its objectives.

Attainable goals. No compensation or recognition programs stands a chance of influencing behavior if the majority of employees feels incapable of achieving the desired level of performance. To make sure you don't set the goal too high, review the group's previous accomplishments.
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