“The main problem with cash is that once it is taken away, it feels like a cut in pay.” That's Louise Anderson's take on cash incentives, and she should know, as president of Anderson Performance Improvement Co., Hastings, Minn. Rather than cash, she advocates a system in which employees receive “e-points” redeemable for a variety of awards, from sports gear to home entertainment equipment.

Here is why cash incentives don't work, according to Anderson:

  • Here today … — Cash is too easily absorbed into personal budgets and feels like a cut when it disappears.

  • Trophy value — People don't display cash awards and sometimes don't even remember what they bought with them.

  • Guilt factor — Many feel cash should go toward paying bills instead of being spent on luxury items.

  • Perceived value — $50 in cash is perceived as an amount that doesn't go very far.

  • Motivation factor — Except for large amounts, cash is not exciting to promote.

  • Token economy — Cash is often perceived as an entitlement.

  • Personal goal setting — Management sets the award amount as the goal, rather than the employees.

  • Community engagement — Family and friends have limited involvement, whereas they would share in the excitement of other awards.

  • Tax liability — Employers are taxed a high rate on cash.

  • Individual choice — Technically, cash seems to give program participants the ultimate choice, but research shows otherwise — cash lacks the motivational power of tangible rewards.