From Pay to Praise? Cash and Non-Cash Employee Recognition

FROM PAY TO PRAISE? CASH AND NON-CASH EMPLOYEE RECOGNITION

Introduction

Current economic conditions make organizations to think not only to reward but also to motivate them for better work quality which in turn would help in getting a better quality for the betterment of the organization. But this has to be achieved in a very cost effective manner.

Supporting organization culture is very critical for attaining the strategic goals of an organization. Strategy usually focuses on incentives, because it deals with the way goals are achieved. Culture usually focuses on recognition, because it deals with the organizational values of organization. The key building blocks of the organizational culture are values.

Types of recognition:

1. Extrinsic or Cash Rewards:

The various types of cash rewards are giving bonuses, performance incentives, pay hikes etc. As per Peterson and Luthans (2006, p.157), 'money serves as an incentive primarily because it can be exchanged for other desirable outcomes' and thus helps employees to satisfy human needs. The informational value of money can provide feedback on employee on employee performance, enhancing employee perception of self-efficacy (Eisenberger, Rhoades and Cameron 1999).

It is thus clear that money should have considerable motivational value, and the empirical evidence indeed finds strong linkages between monetary incentives and employee performance (Rynes et al. 2005) as well as business-unit performance (Peterson and Luthans 2005).

Extrinsic or Non-Cash Rewards:

Non-Cash can be identified as verbal motivation, mementoes, certificates, plaques, vouchers etc. According to Luthans and Krietner (1975), although non-cash rewards can be positive motivators, they have some drawbacks. They involve costs for the organization and they tend to lead to extreme contention very quickly. This means that employees gets too satiated by the non-cash rewards

Theories of Motivation:

For an employee to give an extra bit in his\her work, it's not only the cash rewards that make a matter. Motivation is an important factor to get that 110% of the employee's work. Maslow's and Herzberg provide puts some light on this issue with their studies on rewards and motivation. As per Maslow's hierarchy of needs, there are five basic needs which motivate a person and how these factors are interconnected with each other. This pyramid of needs can be put as: Physiological (breathing, food, water, sleeps, etc.), Safety (security of body, health, resources, etc.), Love/belonging (friendship, family, etc.), and Esteem (self-esteem, confidence, respect of and by others, etc.), and Self-Actualization (problem solving, morality, creativity, etc.). This theory named "HOLY GRAIL OF MOTIVATION" is a complex state of being and in which employees have a clear goal and self-sustaining desire and the ability to achieve them.

The "DUAL FACTORY" theory by Herzberg which states that employee motivation is directly related to the job performance. This theory of motivation is in place in the organization for the almost 5 decades. As per Herzberg there are two types of factors that motivate workers. The first one is "Motivators." which includes rewards such as achievement, recognition and responsibility. The second one is "Hygiene Factors" such as salary, company policies and working conditions. Herzberg is of the opinion that no reward will inspire employees if their basic needs are not met or if they get little satisfaction from the work process.

Advantages and of Cash and Non-Cash Rewards:

Advantages

Cash Non-Cash

Instrumental Value Regular

Symbolic Value Frequent acknowledgement of employee's contribution.

It can be exchanged for other desirable outcomes-control over satisfying personal needs. Timely basis

Lesser cost to company

High visibility

Attention producing trophy/prize.

Disadvantages of Cash and Non-Cash Rewards:

Disadvantages

Cash Non-Cash

Less flexible Total absence of cash rewards/bonuses can lead to loss of confidence in employer

Less frequent

Occurs long after the successful contribution

Increases total costs

Short term motivator

Discourage co-operation among employees

Cash rewards/bonuses effective as recruitment, retention tool rather than reward for good performance.

Relationship between cash and non-cash rewards:

Three possibilities can be highlighted to find the relationship between cash and non-cash rewards:

1. Non-Cash rewards can be considered as a substitute to cash rewards.

2. Non-cash recognition serves as a compliment to cash based recognition. or

3. There is no considerable relationship between cash and non-cash rewards.

Many prominent ideologists suggest that non-cash recognition is superior to cash recognition, in both effect and cost and thus it should substitute for cash recognition. As per Nelson (1996, p. 55), he suggests companies the idea of 'Dump the cash, load on the praise'. Many prominent writers of compensation do not see cash and non-cash rewards as substitutes of one another.

Predictors of cash and Non-cash Rewards:

1. Presence of labour Union:

Union