Here’s a closer look at the reality of cash awards and why it’s worth considering a non-cash award system instead.
With cash, taxes are involved. The Internal Revenue Service regards every cash award presented to an employee who’s gone above and beyond expected performance as “ordinary income.” For employees, ordinary income is subject to federal and state withholding taxes, and FICA Social Security and Medicare withholding. For the employer, ordinary income is subject to their contribution toward FICA Social Security and Medicare, and state and federal unemployment insurance.
Costs can increase substantially. Depending on the number of employees who might receive a cash bonus in any given year, businesses must determine if monthly, quarterly and/or annual monetary incentives are worth the substantial expense. Costs can quickly escalate with a cash bonus program.
Employees may equate cash award with years of service. Cash awards sometimes create a problem with perception. For example, when employees reach their five-year anniversary with a company and receive a $50 cash award for this achievement, they (or others around them) may make the following association: “Am I worth only $10 extra a year to this company?”
Arriving at this conclusion can trigger negative feelings toward the employer — the precise opposite of what a bonus award is meant to achieve.
Cash gets spent on necessities. While it’s not always true, there are plenty of times when an employee receiving a cash bonus feels obliged to spend it on daily necessities (food, gas, bill payment, clothes for kids, etc.). There is nothing wrong with choosing to spend money this way, but it does lessen the emotional significance of the award in terms of employee loyalty and engagement with the business.
Even more problematic, some employees who don’t spend a cash award on necessities feel guilty because of this decision, yet another negative consequence of this incentive strategy.
Cash award programs can disrupt the company culture. When incentives are created on the basis of employee competition, the result may “lead to an environment where employees are actively trying to out-do their colleagues,” notes Bridget Miller at HR Daily Advisor. At first blush this sounds like a recipe for high performance, but, Miller says, “it can lead to employees sabotaging the efforts of their teammates or working on their individual goals to the detriment of the company’s goals.”
Non-cash awards — from sponsored team experiences to public recognition and gift card programs — hold different associations for most employees. Unlike cash, such awards represent a tangible symbol of the organization’s appreciation for their efforts and support for their future growth. In addition:
- Gift awards in a qualified plan don’t carry the tax and fee obligations of a cash award.
- Gift awards are deductible as a business expense to the employer.
- Gift awards come with a “guilt-free” perception of value.
When it comes to non-cash awards, there’s also the element of “bragging rights.” Generally speaking, it’s more acceptable for an honored employee to proudly discuss a non-cash award than something measured in an exact cash amount.
“People say that the last taboo is money — nobody wants to talk about how much they make or how much they have in their wallet,” says employee engagement specialist Rodd Wagner. “If you say, ‘I got $500 from my company,’ people think it’s gauche, but it’s easier to say, ‘I really worked hard and my boss gave me some points and I cashed them in to get this camera.”
While it’s true that everyone likes getting extra money, for many businesses the other factors involved may make a non-cash award program the most attractive alternative.
Carl Martens graduated from DeVry University with a degree in Sales and Marketing. He is currently a resident catalyst for change at Award Concepts, working closely with clients to develop and deliver custom recognition programs.
