Abstract
Standard economic theory asserts that cash incentives are always better than non-cash ones, or at least not worse. This study employs a real effort experiment to analyze the impact of monetary, non-monetary, and a combination of monetary and non-monetary incentives on performance, where non-monetary incentives are defined as tangible incentives with market value. Our overall results suggest that there exists no significant difference in performance in response to monetary, non-monetary, and mixed incentives. However, gender-based differentiation reveals a different picture: the performances of men and women depend upon the type of incentive used. Whereas men’s performance is significantly higher in response to monetary incentives compared to non-monetary ones, women’s performance is significantly higher in response to non-monetary incentives. The gender differences in the effectiveness of monetary and non-monetary incentives do not seem to be triggered by the perceived attractiveness of the non-monetary incentives but rather by the differences between men and women in the feelings of appreciation and perceived performance pressure in a tournament setting. Therefore, our results indicate that gender differences must be considered when implementing incentives.
Highlights
Cash is king? According to standard economic theory, a monetary incentive is always better—or at least not worse—than a non-monetary incentive of equal market value due to the option value of cash (Jeffrey 2009; Waldfogel 1993)
Our results suggest that these gender differences regarding the impact of monetary and non-monetary incentives on performance do not seem to be evoked by the perceived prize attractiveness
Assuming that individuals have standard preferences, that is monotonic preferences (“more is always better”), we argue that non-monetary incentives are superior to mixed incentives, and mixed incentives are superior to monetary incentives for women
Summary
Cash is king? According to standard economic theory, a monetary incentive is always better—or at least not worse—than a non-monetary incentive of equal market value due to the option value of cash (Jeffrey 2009; Waldfogel 1993). It is often difficult for companies to determine the preferences of individual employees and choose the most suitable non-monetary incentives. Employees would be better off receiving cash incentives, which enable them to purchase benefits that maximize their individual utilities (Jeffrey 2009). The use of non-monetary benefits is not reasonable from a neoclassical viewpoint, it is a widespread phenomenon within companies (Kauflin 2017; Zepelin 2017). Besides monetary incentives such as profit-sharing or bonus payments, non-monetary benefits such as restaurant coupons for meals (Condly et al 2003), incentive travel, merchandise (i.e., electronics, luggage, or watches), and gift cards are often used by companies to reward top performing employees (Incentive Research Foundation 2016, 2017). A famous example is the cosmetics company Mary Kay, which rewards its top salespersons with luxury goods such as exclusive pink Cadillacs, diamond bracelets, and first-class trips to cities in foreign countries (Howell and Wanasika 2019)
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