The future of employee rewards.
The gift card industry in Australia is estimated to be worth somewhere between $2 billion according to estimates by the Australian Retail Association and $2.5 billion according to Choice. Even if you split it down the middle, it’s a large industry.
With an estimated $70m going unused each year, if you are using gift cards as rewards, who are you really rewarding?
The future of employee rewards.
The gift card industry in Australia is estimated to be worth somewhere between $2 billion according to estimates by the Australian Retail Association and $2.5 billion according to Choice. Even if you split it down the middle, it’s a large industry.
With an estimated $70m going unused each year, if you are using gift cards as rewards, who are you really rewarding?
Retailers love gift cards. They get their money before handing over the goods, they enjoy an ‘uplift’ in sales as the card holder spends more than the card value (anyone else guilty of walking in with a $50 voucher and coming out with $250 of goods?), and in some cases, retailers can bank the full value of the card without ever having to hand over an item in return. That’s right, any card that goes unredeemed is considered ‘breakage’ by the retailer and they take up the profit. Kind of like handing over $100 notes to a store and not getting anything back for it.
If you look at this in the context of employee rewards, gift cards may not be particularly rewarding. But the news with gift cards gets worse.
Gift cards are essentially cash and our response to them is a rational, left brain response. If you give an employee a $100 gift card to spend at retailer, there are a couple of scenarios that may occur. They may get home, hand it over to their partner and tell them to enjoy. They may take the card and decide what they will spend it on for themselves or the kids, or the house or their mother-in-law’s upcoming birthday. These scenarios may be somewhat rewarding but the card may also be spent on items that would have been purchased anyway, negating the impact of the reward.
Your employee may also take the card, stash it in a drawer and forget about it. We have already determined that happens more than we would like to think based on the unused values reported each year. No-one would stash cash in a drawer and forget about it but our relationship with cards is different. When they are given to us they don’t feel hard earned so we are more likely to forget about them and then find they are no longer valid. Although, unless you have really long term memory loss, this is changing in Australia with many cards now having extended expiry dates.
Regardless of how your employee uses their ‘gift’, they will look at the value of the card and consider it somewhat like a cash payment for their efforts. They will rationalise if the effort they extended was worth the reward. Given the value of the reward is so blatant, it is easy to consider if the hard work extended to earn the reward, was in fact worth it. In some cases it may be but in many cases, employees can feel inadvertently de-motivated by knowing their achievement is worth a certain value to the company.
The whole ‘gift card as a reward’ thing does not get much more positive when you look at research on how we modify behaviour based on cash rewards.
If you ask any group of people, anywhere in the world, how they want to be rewarded, the most popular response is cold, hard cash. We have a left-brain response to cash, knowing it’s value and in many cases, how we will spend it. Many research studies have asked the same question and the results are overwhelmingly in favour of cash. What is interesting, is when you look at how performance changes with cash on the table as the reward.
Some researchers at the University of Chicago set out to understand, if most people say they prefer cash, how does cash impact their actual behaviour. The researchers did this by offering three groups of people three different rewards - a massage, a luxury chocolate bar and a heartfelt thank you as the reward for performing a simple anagram game.
All three groups did the exercise once to set the benchmark for the study. They were then divided up and offered one of the three rewards. The group who were offered a thank you performed at the same level as the first time. The group who were offered the luxury chocolates performed 14.6% better at the anagram game the second time around. The group who were offered the massage, considered by most the ‘best’ reward, performed 38.6% better the second time they played the game.
Those who had earned the massage were then surveyed about their rewards. With vouchers in hand, 64% of them said they would still prefer cash and 64% also said that they would probably not spend their own money on a massage. That is, they would not spend money they earned as a reward on actually rewarding themselves.
What makes this interesting, is even with the voucher in hand, when this group had modified their behaviour to earn the massage, they still stated a preference for cash. We really are irrational humans!
Knowing that we have a preference for cash, regardless of the outcome, let’s then see what people will do for a cash reward.
In another study at MIT, strangers on the street were asked to help change a flat tyre. When offered a chocolate bar, about 64% of people agreed to help. When offered the value of the chocolate bar in cash, participation dropped by about 17%. When both the bar and the cash were offered, you would expect the result to be similar to when just the bar was offered - but in fact the opposite was true. Willingness to help dropped when both the chocolate and the cash were offered as a reward.
This is one of many studies that shows that with cash in the equation, people are not willing to change their behaviour. Even though we say we want cash as a reward, changes in our performance or limited or negative.
What this proves is that we are not rational, left brain driven beings. We say cash but we work for massages, we work for chocolate, but not chocolate and cash. This is called the Do Say Gap in behavioural economics. We say one thing but when it comes to actually doing, are motivated by something different.
If you are designed an employee recognition program to change or align behaviour of your employees, keep this in mind.
What is the future of employee rewards?
The industry today looks at two kinds of rewards – cash vs non-cash. We have just seen the argument for non-cash and it is strong. Simply, if you have a choice of cash vs non-cash, choose non-cash every time.
However, there is an emerging trend in the rewards industry of looking at rewards slightly differently and that is as material rewards vs non-material rewards.
Material rewards are pretty self-explanatory – items we are given or can redeem with a currency like points or cash. Many of us are members of at least one – if not many – program that offers material rewards. Airline frequent flyer programs, banks, insurance companies, supermarkets are good examples of programs, albeit customer loyalty programs, that use material rewards to encourage behaviour. Do what the airline wants you to do – travel – and earn points you can spend on material things – more travel, electronics, perfume, wine, etc.
Non-material rewards are those that money can’t buy – but not in an over the top, uber-luxe kind of way. They are time and activity rewards that improve your employee’s lifestyle and give them a reward that they deeply value - above material things.
There are indicators that one of the things people may value most is what they feel they increasingly have less of. Yes, you guessed it – time.
A study out of Harvard University (Buying Time Promotes Happiness), suggests that as wealth has increased, there has been the unintended consequence of time scarcity. They found that increased earnings does have the potential to improve happiness, but it all depends on what the money is spent on. The authors state that ‘the time famine of modern life’ can be reduced by using money to buy back more time.
What they are saying is that having more money is not motivational, it is the time you can gain from a larger pool of cash that motivates. Makes sense to us!
Putting this into a reward context, rewarding effort with time to enjoy pleasurable experiences – not just the experience itself, but the time to do it guilt-free – could be the way forward for employee rewards.
With the basis for aspirational rewards being that they are something we would not necessarily buy for ourselves, they are hedonic and also sociable, time to do something enjoyable fits the rewards bill to a tee. You are unlikely to chat to your friends about the $1,000 cash reward you go however you will socialise the day you spent volunteering courtesy of your company rewards program. Or the afternoon you filled with memories watching your first-born compete in the school sports day. Or the holiday you started early thanks to your manager giving you a non-material reward.
In short, cash has a place - we all need to eat and pay for our Netflix obsession – but if you are looking for rewards that will have the biggest impact on behaviour, cash is not the answer.