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Are Cash Incentives Still Effective in 2025?

Baylea Richardson

Are you considering a cash incentive program to improve performance and motivate employees? This article will discuss the pros and cons of cash incentive programs and consider alternatives.


Cash incentives are just one of the many tools for positive reinforcement. Employers set goals for employees, and when those goals are reached, employees are rewarded with cash. These goals may relate to quality, safety, productivity, or other elements of work.


Cash incentives are often seen as an easy, flexible way to motivate and reward performance. After all, who would say no to a little extra cash? However, research has shown that cash incentives may not be the most compelling reward for employee performance, both from a fiscal and motivational standpoint. 

Do Cash Incentives Work?


From a fiscal standpoint, cash incentives incur costs in addition to the face value of the reward. Cash incentives are treated as supplemental income and taxed at a higher rate than their regular paycheck. This means higher tax payments for both employers and employees, which automatically diminishes the reward’s value. Even if you use gift cards as an incentive (typically smaller dollar amounts and distributed more frequently), you will incur higher costs than the card value. For example, a $25 retail gift card grossed for taxes costs the company closer to $40. 


As a result, cash incentives have limited scalability— which can make them ineffective in the long run. Cash bonuses are usually capped at a percentage of the employee’s salary and limited by budgetary constraints. Once that ceiling is reached, the cash value of rewards stagnates, as does their impact on employees. Instead of being a meaningful reward for a specific achievement, cash incentives lose their shine and motivational power. Employees can start to see cash incentives as a routine part of their compensation, which diminishes their value as a tool for increasing performance. 


Cash isn’t the most powerful motivational tool for creating discretionary effort. Every company gives its employees a paycheck. But creating discretionary effort and motivating employees to go above and beyond requires more than just “more of the same.” Research by Gallup found that the two most memorable forms of recognition were public or private commendations from leadership within their company.


Non-cash recognition is also more effective for reinforcing company values and culture. Cash is inherently formulaic and transactional. Every working day, we transact our time and labor for money. Time and labor are measurable and finite with a specific exchange rate. It's easy to translate productivity and sales behavior into cash because both actions are linked directly to the company's bottom line. But how do you translate values-based behaviors, which are just as (if not more) important as productivity, into cash? It's difficult to put a dollar amount on behaviors like being honest, going the extra mile, collaborating with coworkers, and being a mentor.


This isn’t to say incentives are a no-go for recognition. Rather, incentives should be the icing of a strong recognition system. And since 84% of US businesses spend about $176 billion annually on incentives, it pays to get it right.


Here are 3 steps to get started:


  1. Identify what you want to reinforce. Positive reinforcement is a tool that strengthens the behavior it's associated with. Ask yourself: what behavior(s) would I like to see employees perform more often, or with greater accuracy? Behaviors related to safety and quality are two common targets. This step is important because what you reinforce should speak to your company's values and will dictate the results of your reinforcement effort. At the Bill Sims Company, Inc., we like to take clients through an analysis of their strengths, weaknesses, and goals to pinpoint areas for improvement. This allows us to identify specific behaviors we want to target.

  2. Get leadership involved. The same Gallup research cited earlier revealed that the most memorable recognition comes from their direct manager, followed by recognition from a high-level leader or CEO. Therefore, it's critical to equip managers with the skills to recognize employees for their hard work. Above all, managers should know how to give authentic recognition— meaning, the commendation given should be sincere and connected to an employee's behavior.

  3. Create an organized system for recognition. Consistent reinforcement is the most effective. Gallup recommends weekly recognition to reinforce company values. SmartCard, the Bill Sims Company, Inc.'s incentive program, has digital reminders and prompts managers to give personal commendations at least once per week based on key behavior targets. This ensures that no one slips through the cracks and makes recognition efforts easier to maintain.

The Bill Sims Company, Inc. specializes in incentive programs tailored to its clients' needs. Schedule a call today to find a recognition system that's made to work for you.  

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