Travel Incentives vs. The Cash Question

The general rule that 20% of your employees deliver 80% of your results means that the middle 50% of your staff can be encouraged to go for stretch goals. Tradition will say that they want cash. Yet research on the effectiveness of incentives concludes that employees will quickly view cash bonuses as an entitlement and will use incentive dollars to pay down debts. At best, they will give you a diminishing acknowlegement for your investment in performance improvement and at worst, have yet another reason to be critical of your efforts!

American Express Incentive Services asked over 1000 recipients how they spent their cash reward or bonus

Cash has poor Motivational Power. It is almost always viewed as a part of normal compensation, an entitlement that is due the employee regardless of performance. Once this pattern of reward is established, it becomes difficult to change or terminate.

1. Cash or goodies have no Trophy Value
You can't mount it, you may not want to show it off if you are going to use it to reduce debts, you can't photograph it. Cash has a very temporary association with performance improvement.
2. Cash provides little Personnel Fulfillment.
Travel Incentives offer guilt-free enjoyment of a reward and can be shared with dependants; while cash is typically expended on short term needs or is laden with guilt. 'How do I spend it?' turns into 'How should I spend it?'.
3. Cash has diminished Promotional Appeal.
A travel incentive has greater perceived value than cash. A tropical vacation for two that includes airfare, a luxury Caribbean or Alaskan Cruise with exotic ports of call, chilled champagne in the cabin, plus 4 star dining has significantly more appeal than an equivalent amount of cash.
4. Cash or goodies are an ‘Expensive Use’ of the Reward Budget.
The cost to the business of a dollars worth of cash or an item like a digital camera is a fixed quantity and likely measured by the recipient. A combination of bulk-buy discounts, travel industry allotments and the sheer perceived luxury of a vacation experience, all ADD up to significant sense of value attached to the reward. The employer or manager is seen as understanding performance motivation in a wholly more meaningful way
5. Cash has reduced Financial Impact. You can't buy performance nearly as well as you can motivate it. Dedicate 3-5% of yearly compensation to travel incentives and yield the same gains that 15% of compensation in cash rewards would produce. This amounts to a 3-fold increase in spending to achieve the same results*

*Drawn from "People, Performance and Pay", American Productivity Center and American Compensation Association