Benefits & Drawbacks of Employee Cash Incentives | The Total Compensation Blog | COMPackage (2024)

by Joe Blattner

Ask most employees if they’d rather have cash or non-cash incentives, and they’ll choose the cash incentives almost every time. However, as an employer, you have many other factors to consider when choosing an incentive other than whether or not employees say they want it. Carefully consider the benefits and drawbacks of cash bonuses before creating your incentive program.

Benefits of Cash Incentives

• Nothing talks louder than cash – Many employers find that as soon as they offer cash incentives for a task, their employees start working harder. For fast, effective gratification, few incentives work better than cash.
• Easy to distribute – Cash incentives require little extra effort on the part of an employer to distribute. Money can either be added to a paycheck or distributed as cash.
• Practical – Many non-cash incentives appeal more to some people than others. While some employees may not need a new iPod or tickets to a sporting event, everyone can benefit from a little extra cash.

Drawbacks of Cash Incentives

• Can become viewed as base pay – When employees receive cash bonuses on a regular basis, they can come to expect them as part of their base pay. For example, many people rely on their annual Christmas bonuses or quarterly commission checks to pay their bills. If these benefits ever have to be taken away, things could get ugly fast.
• Disappears quickly – Cash incentives are often quickly forgotten because they are spent on necessities – things like bills, debt or Christmas presents. On the other hand, even small non-cash incentives like movie tickets, electronics or gift cards are remembered long after they’ve been received.
• Takes the joy out of incentives – Non-cash incentives often make a more positive impact because they are viewed as “treats,” while cash incentives are often seen as more practical.

The best incentive programs often involve a mix of cash and non-cash incentives. To show your employees how much their non-cash incentives are worth, consider total compensation statements through COMPackage.