The Performance Effects of Tangible Versus Cash Rewards: The Mediating Role of Categorization and Reward Attractiveness

• In Event: Incentives and Behavior

Abstract

Organizations spend billions of dollars annually on performance-based tangible rewards such as vouchers and merchandise, yet studies report inconsistent support for the performance benefits of tangible rewards over cash rewards. To better understand these inconsistent results, we propose a conceptual model of how reward type (cash versus tangible) affects perceptions of reward attractiveness and performance through two countervailing mechanisms: (1) distinct (separate) categorization of the reward, and (2) the fungibility of the reward. Results from three experiments provide support for our conceptual model. First, we find some evidence that tangible rewards are categorized differently than cash rewards. However, this result is not robust across the three experiments. Second, we find distinct categorization leads to higher perceived reward attractiveness. Third, we find that greater fungibility of the reward also leads to higher perceived reward attractiveness. Last, we find that reward attractiveness is positively associated with performance. Our study informs practice on the importance of distinct categorization of rewards when selecting the type of reward to offer employees. Further, we identify the countervailing mechanisms that could explain why prior research finds inconsistent support for the relative performance effects of cash and tangible rewards.

Authors

• Jongwoon Choi, University of Pittsburgh

• Adam Presslee, University of Pittsburgh