Analysis of Tangible Rewards in Incentive Schemes

Abstract

This report explains why sales employees treat tangible rewards differently from cash rewards and how tangible rewards motivate sales employees to attain better performance based on relevant theories and experiments. Five main explanations are given. Firstly, employees perceive cash rewards as “more salary” and treat tangible rewards separately from cash earnings. Consequently, tangible rewards are perceived more valuable. Secondly, the hedonic nature and an ambiguity in value lead to an increase in perceived value of tangible rewards. Thirdly, tangible rewards better convey employers’ recognition and appreciation of employees’ good performance and therefore are perceived more memorable and valuable. Fourthly, employees find it is easier to justify hedonic purchases if the hedonic goods are earned as tangible rewards. Accordingly, tangible rewards are more attractive. Lastly, poor-performing sales employees tend to be more optimistic when eligible for tangible rewards and exert more effort.
Based on the findings, the report also gives some recommendation on using tangible rewards to motivate employees:
To consider the income level of employees
To ensure tangible rewards are of hedonic nature
To implement some tournaments schemes if applicable
To communicate recognition and appreciation through tangible rewards