The Case for Non-Cash Rewards
When it comes to motivating employees, not all rewards are equal. Behavioral economist Richard Thaler’s mental accounting theory helps explain why in Mental Accounting Theory and the Efficacy of Non-Cash Rewards from the Incentive Research Foundation.
People don’t view all money – or rewards – the same way. We create “mental accounts” that separate fun money from bill money. That’s why splurging with a gift card feels different than paying with cash, even if the amounts are the same.
This distinction is especially important in the world of employee recognition. Over 80% of U.S. organizations already use non-cash rewards like gift cards, merchandise or travel. Why? Because unlike cash, which employees often fold into salary and forget, tangible rewards stand apart. They’re memorable, motivating and more likely to create the kind of emotional impact that drives long-term performance.
Why Non-Cash Rewards Outperform Cash
Across a series of experiments with 320+ participants, researchers found that non-cash rewards consistently outperformed cash rewards in driving motivation and performance. Here’s why:
Cash blends into salary
Employees classified bonuses as “bill money” rather than something special. Non-cash rewards, like movie gift cards, were seen as distinct, fun and memorable.
Tangible rewards boosted goal commitment
Participants worked harder and achieved more when their effort was tied to a reward that felt separate from their paycheck.
Unexpected rewards had even greater impact
When rewards were framed as surprise “windfalls,” participants performed significantly better than when they expected the reward upfront.
Fun vs. Practical Rewards
But the story doesn’t stop there. Follow-up research asked: Do all non-cash rewards perform equally well?
The answer: No. Fun or indulgent rewards outperform practical, or necessary rewards.
In experiments comparing gift cards for movies (fun) versus groceries (practical), participants with indulgent rewards consistently put in more effort and delivered higher performance – even when both rewards were rated equally attractive upfront.
The takeaway? Employees mentally classify practical rewards with salary, but they treat indulgent rewards as something special. And that slight difference is key. Non-cash, indulgent rewards don’t just feel better – they perform better. That’s the science of motivation at work.
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