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Maximizing Employee Performance: A New Perspective on Reward Frequency and Type

BY Lucy Fang
Nov 28, 2023
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Reward Frequency and Type

Navigating the Terrain of Performance-Based Rewards

In the dynamic business world, motivating employees is akin to navigating a complex maze. As an incentive program manager, have you ever pondered the intricate balance between the type and frequency of rewards driving employee performance? The landscape of incentive compensation is evolving, with two pivotal trends at the forefront: the shift towards more frequent rewards and the growing preference for tangible rewards over cash incentives. But how do these trends impact employee performance? The answer lies not just in what we offer but also in how and when we offer it. This exploration explores the interplay between reward frequency and type and its consequential effects on employee motivation and performance. Consider how these insights could reshape your organization’s reward strategy as you read on.

Understanding Reward Dynamics

Have you ever wondered whether increasing the frequency of rewards enhances employee performance? And does the type of reward – cash or tangible – play a significant role in this dynamic? A recent study, “The Effect of Reward Frequency on Performance Under Cash Rewards and Tangible Rewards,” from the University of South Carolina in conjunction with Georgia State University and the University of Denver. Sheds light on these pressing questions. Researchers embarked on a journey to unravel the complexities of performance-based rewards, examining the dual impact of reward frequency and type on employee output. Their investigation was grounded in economic and behavioral theories, leading to some eye-opening revelations.

The study revealed that elevating reward frequency generally boosts employee performance over time. However, the intriguing part lies in comparing cash and tangible rewards. When the rewards were in cash, the increase in frequency had a markedly more positive effect on performance than when the rewards were tangible items. This finding prompts a crucial question for you as a leader in your organization: In your current reward system, are you leveraging the optimal mix of reward frequency and type to maximize employee performance? Reflect on this as we dive deeper into the nuances of the study’s findings and their implications for your business strategies.

Key Findings: Delving Deeper into the Efficacy of Reward Frequency and Type

In our quest to optimize employee performance, the intersection of reward frequency and type reveals fascinating insights. The study under discussion brought to light the nuanced effects of these variables, offering invaluable lessons for incentive program managers.

Firstly, consider the impact of cash rewards. The study from the University of South Carolina in conjunction with Georgia State University and the University of Denver by A. H. Newman, N. J.  Waddops, and X. Xiong titled “The Effect of Reward Frequency on Performance Under Cash Rewards and Tangible Rewards” found that increasing the frequency of cash rewards significantly enhances employee performance over time. This trend is attributed to the immediate and tangible nature of cash, which resonates strongly with the concept of reinforcement immediacy. Each frequent cash reward acts as a direct, positive reinforcement, continually boosting morale and motivation. As leaders, how often do you reward your employees with cash incentives? Could increasing this frequency be the key to unlocking higher performance levels in your team?

On the other hand, while initially appealing, tangible rewards showed a different trajectory. The study revealed that the performance benefits of tangible rewards, such as gift cards or merchandise, tend to plateau over time, even with increased frequency. This phenomenon can be attributed to the concept of satiation – the diminishing emotional impact of a reward upon repeated exposure. It leads us to ponder: Are tangible rewards in your organization losing their sheen over time? Is there a risk of employees becoming too accustomed, or even indifferent, to these forms of incentives?

These findings prompt a strategic reevaluation of our reward systems. While the allure of tangible rewards is undeniable, their long-term effectiveness in driving performance might not parallel that of cash rewards. This knowledge empowers us to make more informed decisions in designing reward programs that attract and motivate employees and sustain their performance growth over time. As we navigate the complexities of employee incentives, these insights serve as a guiding light, ensuring our strategies align with the underlying psychological drivers of employee behavior and performance.

Understanding the Psychology Behind Rewards

The findings from this study don’t just stand alone; robust theories back them up. Have you heard of mental accounting or reinforcement immediacy? These concepts play a pivotal role in understanding employee responses to rewards. Mental accounting theory suggests people perceive and value money differently based on its source and intended use. When rewards are frequent, employees see each reward as a distinct gain, leading to higher motivation and performance, especially with cash rewards.

Then there’s reinforcement immediacy – the idea that immediate rewards reinforce behavior more effectively after a task. With frequent cash rewards, employees experience immediate gratification more often, strengthening their motivation. In contrast, the satiation theory indicates that the novelty of tangible rewards wears off over time, diminishing their motivational impact.

As you reflect on these theories, consider how they align with your current incentive strategies. Are your reward programs designed to tap into these psychological underpinnings effectively? Understanding these theories not only enlightens us about the ‘why’ behind the study’s findings but also guides us in optimizing our reward systems for maximum impact.

Practical Implications for Businesses

When integrating reward strategies into organizational practices, it’s crucial to distinguish between regular compensation and additional monetary rewards. As the term implies, compensation is the typical salary or wages employees receive for their job responsibilities. This form of payment is expected, consistent, and not typically linked to specific performance achievements. In contrast, monetary rewards, such as those discussed in Newman et al.’s study “The Effect of Reward Frequency on Performance Under Cash Rewards and Tangible Rewards,” are additional incentives to recognize specific achievements or exemplary behavior. These rewards, whether as bonuses, cash incentives, or even prepaid cards like Visa cards, are designed to acknowledge and encourage exceptional performance beyond an employee’s regular duties at work. However, a key challenge lies in ensuring employees perceive these rewards correctly. Renowned organizational behavior experts Kahneman and Thaler suggest that clear communication and distinct presentation of these rewards are essential to provide clarity with regular compensation. This differentiation is not just a matter of semantics but a strategic necessity to maintain motivation and transparency within the reward system (Kahneman, D., & Thaler, R. H., 1991). Therefore, while designing and implementing reward programs, organizations should strive to make this distinction evident to avoid any misperception among employees.

Understanding the Distinction: Compensation vs. Monetary Rewards

When integrating reward strategies into organizational practices, it’s crucial to distinguish between regular compensation and additional monetary rewards. Compensation, as the term implies, is the regular salary or wages that employees receive for their standard job responsibilities. This form of payment is expected, consistent, and not typically linked to specific performance achievements. In contrast, monetary rewards, such as those discussed in Newman et al.’s study “The Effect of Reward Frequency on Performance Under Cash Rewards and Tangible Rewards,” are additional incentives provided in recognition of specific achievements or exemplary behavior. These rewards, whether in the form of bonuses, cash incentives, or even prepaid cards like Visa cards, are designed to acknowledge and encourage exceptional performance beyond regular duties. However, a key challenge lies in ensuring these rewards are perceived correctly by employees. Renowned organizational behavior experts, Kahneman and Thaler, suggest that clear communication and distinct presentation of these rewards are essential to prevent any confusion with regular compensation. This differentiation is not just a matter of semantics but a strategic necessity to maintain motivation and clarity within the reward system (Kahneman, D., & Thaler, R. H., 1991). Therefore, while designing and implementing reward programs, organizations should strive to make this distinction evident to avoid any misperception among employees.

Embrace the Future of Reward Programs

As we’ve explored, the right reward strategy can significantly influence employee performance. Are you ready to harness the full potential of your reward programs? At All Digital Rewards, we specialize in crafting reward solutions that resonate with these findings. Our expertise in diverse rewards and incentive solutions, including customizable prepaid debit cards and program management, positions us perfectly to help you navigate these insights for optimal impact.

Don’t let your reward strategy become stagnant and participant disengaged. Contact All Digital Rewards today to explore how we can revolutionize your approach to employee incentives, driving engagement, acquisition, and retention to new heights.

References:

Newman, A. H., Tafkov, I. D., Waddoups, N. J., & Xiong, X. (2022). The Effect of Reward Frequency on Performance Under Cash Rewards and Tangible Rewards. University of South Carolina; Georgia State University; University of Denver.

Kahneman, D., & Thaler, R. H. (1991). Economic Analysis and the Psychology of Utility: Applications to Compensation Policy. American Economic Review, 81(2), 341-346.