When and why tangible rewards can motivate greater effort than cash rewards: An analysis of four attribute differences

Abstract

Tangible rewards (e.g., gift cards, merchandise) are non-cash incentives with non-trivial monetary value. Proponents claim tangible rewards are more motivating than cash rewards because of greater reward distinctiveness – employees perceive cash rewards as simply “more salary,” but tangible rewards as being distinct from salary. Using four studies, we investigate the effects of four attribute differences between cash and tangible rewards on employee effort: fungibility, hedonic nature, novelty, and discrete framing. We find these four differences affect effort, both individually and collectively, in a manner consistent with proponents’ claims. We also find the greater fungibility of cash has countervailing motivational advantages over tangible rewards. Overall, our results go beyond demonstrating whether tangible rewards motivate greater effort than do cash rewards and shed light on when and why tangible rewards motivate greater effort. Furthermore, our emphasis on reward attributes highlights the value in thinking of rewards more broadly as combinations of attributes rather than a strict dichotomy of cash versus tangible rewards.

Keywords: cash rewards; effort; mental accounting; reward attributes; reward distinctiveness; tangible rewards.

JEL Classification: M40, M52