Cash and Non-Cash Incentives during a Cost of Living Crisis

With rising food prices and spiralling fuel costs, many employees in Australia are starting to feel the financial pinch. In fact, just recently the Australian Bureau of Statistics reported that monthly inflation increase of 7%, 18.6% increase in food costs and fuel prices are up by 15%. With interest rates expected to increase and wages simply not keeping up, Australians are starting to feel the financial pinch.

The problem is that companies are affected too. With increasing expenditure, customers cutting back, and even the cost of transitioning to hybrid, many find themselves unable to increase salaries across the board, and certainly not in line with inflation.

PwC’s Future of Work study found that 38% of Australian workers are currently looking at leaving their job in the next 12 months, but almost half of the top executives had no intention to update their employee value proposition (EVP). The reasons for people thinking about leaving their job are due to a combination of factors such as:

• Working environment
• Work-life balance
• Wellbeing
• Career development
• Company brand and values
• Employee experience (culture, diversity, relationships, energy)

One factor that is certainly becoming more prevalent for leaving an organisation is the remuneration and rewards offered, driven by a need to secure a bigger pay packet to keep ahead of the rising costs. Even those not currently looking elsewhere are still being asked to perform at the same level for what is essentially less money in real terms. Not to mention that with the cost of living concerns hanging heavy over many employees, it’s understandable if their mind isn’t fully on their job.

Now, more than ever, companies need to rethink their EVP strategy, especially on the topic of rewards in an environment with cost of living pressures. The question is what type of rewards are most effective in a period of high inflation?

Cash and Non-Cash Incentives during a Cost of Living Crisis

There is plenty of research and case studies out there that indicate non-cash rewards are more effective motivators than cash in many cases. Studies conducted by BI WORLDWIDE also conclude this finding, but what research is out there that can be referred to on cash versus non-cash rewards in times of high inflation and low unemployment?

The high inflation environment has built up heightened awareness of the costs of living pressures therefore humans are being more deliberate in evaluating spending habits and the value of everyday items.

From a behavioural science perspective, this means humans are activating certain parts of the brain (more than usual) that are involved in rationality and calculation (calculating value).

"Therefore, when it comes to cash-based rewards (such as gift cards), individuals look at it the same way they assess wages and salaries having eroded in value, especially if cash rewards haven’t increased at the pace of inflation. This thought process humans go through is likely to conclude the cash reward as less valuable as before, especially in this environment."

Non-cash rewards such as merchandise, travel and experiences avoid this thought process as it activates emotional triggers in the brain (skipping the rational and calculation process).

Experiments by Professors Christopher Hsee and Yuval Rottenstreich, as well as social psychologist Daniel Kahneman, draw similar findings where humans evaluate tangible rewards (non-cash) based on feeling, and avoid the process of calculating its monetary worth as done with cash rewards. Therefore, perceiving non-cash rewards as more valuable, aspirational, and motivating.

Concluding that cash rewards are well suited to evaluation by calculation and hedonic rewards are geared to a person’s likes/emotions (trigger feeling). A points-based rewards system linked to a vast offering of tangible rewards and experiences caters for individual likes/preferences while triggering the evaluation based on feeling.

Situational, emotional, motivational

For those companies with a rewards catalogue as part of their recognition offering, there’s an opportunity to not only ease some of the worries facing employees but also make sure they continue feeling motivated, valued, and heard at a time when reassurance and a sense of belonging are vital.

On top of that, firms that offer merchandise, travel, and other non-cash rewards will likely pay more for them today than they might have two years ago, BUT effective sourcing and working closely with suppliers on special discounts/offers can keep those costs below the overall inflation rate.

If companies want to emotionally engage employees and encourage them to earn and spend points, it’s important to also promote rewards that resonate right now that they’ll remember.

After all, in challenging times the feelgood factor of a treat can really lift the mood:

• Activity alternatives - allows employees to continue with activities they may have sacrificed. For example, offsetting a cancelled gym membership with home workout equipment.
• Occasional options – gives the flexibility for employees to source special gifts for their loved ones and feel great about what they’ve been able to gift them.
• Everyday items – allows the opportunity for employees to potentially spend more time at home when funds are tighter to update/replace more essential household goods to elevate everyday living.
• Wellbeing wish list - gives employees access to rewards that are good for their body and mind, especially important at a time when faced with financial pressures.
• Desirable distractions – offers employees a welcome break from the worry of the times, giving employees the chance to take trips away or redeem a memorable experience.
• Charitable choices – ensures those wishing to make a difference can continue to do so, even if the cost of living is pinching on their disposable income.

So, whilst cash rewards can and will provide respite for many, the power of tangible rewards shouldn’t be overlooked.

One of the biggest benefits of a tangible reward offering is its ability to remove money from the conversation and allow individuals to redeem items without the additional justification that comes with a cash purchase. Through an extensive selection, individuals can align their hard-earned points to the rewards that will mean the most to them in that moment.