When it comes to motivating people, non-financial incentives come out on top. A new McKinsey study reveals that non-cash motivators are more effective than extra cash in building long-term engagement.

We will remember this as one of the most turbulent eras in finacial history. As a result, workplace morale has decreased and companies are no longer able to offer salary increases and holiday bonuses. Companies are becoming creative by seeking effective and cost-efficient ways to re-motivate and re-engage their employees.

McKinsey, a leading management consulting firm, published an article in the November 2009 issue of McKinsey Quarterly that presents a compelling case for nonfinancial incentive programs. The facts are based on survey responses by executives, managers and employees around the world.

Below are some of the standout facts and results. Click on Motivating people: Getting beyond money to read this insightful article.


Other standout facts:

* 70% of organizations have adjusted their reward-and-motivation programs during the last 12 months or plan to do so.
* 27% of the executives surveyed made changes to increase employee motivation.
* 45% of respondents in developing markets, cited employee motivation as the key reason for modifying incentives.

Executives realize the value in incentives. Why aren’t they taking advantage of nonfinancial motivators?

According to the McKinsey article, there are two main reasons. First, executives don’t want to challenge the long-held belief that money is the number one motivator. However, as the study and graph above reveals, nonfinancial incentives rate statistically higher than financial incentives in effectiveness. Sixty-seven percent of employees, managers and executives said praise was more effective than any form of financial incentive including cash bonuses, increase in base pay and employee stock.

The second reason is that executives and HR departments believe non-cash incentives take more time and commitment from senior managers. One HR director surveyed said there was a tendency for managers to “hide” in their offices because of the tense environment that currently exists in the workplace.

To combat low morale and recession adrenaline, managers need to step up and face the challenges head on, not hide behind closed doors. The commitment needed to address employee motivation will pay off ten-fold, as motivated employees are engaged employees, and engaged employees are productive and loyal. For statistics and studies that prove this, read Watson Wyatt’s Weathering the Storm: A Study of Employee Attitudes and Opinions and Towers Perrin’s Global Workforce Study.

Regarding the time involved to implement non-cash incentive programs, there are many ways to automate the time-consuming process of manually managing the program. Ideas include:

* Integrating your incentive program into existing HRIS or CRM systems so your employee data is centralized and inclusive.
* Moving the program online to eliminate paperwork and share information.
* Outsource reward redemption so you don’t have to deal with orders and shipping.

Non-cash incentives are an important element of your talent strategy. As the economy shows signs of improvement, it’s important for business leaders and executives to adapt an innovative approach to re-engaging their workforce and retain their top performers.