The Performance Effects of Tangible versus Cash Rewards: The Mediating Role of Categorization

40 Pages Posted: 18 Aug 2015 Last revised: 21 Mar 2016

See all articles by Willie Choi

Willie Choi

University of Wisconsin - Madison

Adam Presslee

University of Waterloo - School of Accounting and Finance

Date Written: March 6, 2016

Abstract

Organizations spend billions of dollars annually on performance-contingent tangible rewards such as vouchers and merchandise, yet prior research reports inconsistent support for the performance benefits of tangible rewards over cash rewards. We conduct two studies to better understand the performance effects of tangible versus cash rewards. The results of an experiment with a real-effort task (Study 1) indicate task performance increases the more participants categorize performance-contingent pay separately from salary. We also find whether participants differentially categorize cash versus tangible rewards separately from salary depends on the framing of compensation components as either additional wage or a bonus. The results of a free-sort task (Study 2) indicate graduate business students are more likely to mentally categorize tangible rewards differently from salary than they do cash rewards. Collectively, our results inform practice on the importance of distinct categorization of rewards when selecting the type of reward to offer employees, and also inform theory by highlighting an important obstacle to testing the relative effectiveness of cash versus tangible rewards using lab experiments.

Keywords: cash rewards; categorization; mental accounting; performance; tangible rewards

JEL Classification: M40, M52

Suggested Citation

Choi, Jongwoon and Presslee, Adam, The Performance Effects of Tangible versus Cash Rewards: The Mediating Role of Categorization (March 6, 2016). AAA 2016 Management Accounting Section (MAS) Meeting Paper; 2016 Canadian Academic Accounting Association (CAAA) Annual Conference. Available at SSRN: https://ssrn.com/abstract=2645966 or http://dx.doi.org/10.2139/ssrn.2645966

Jongwoon Choi

University of Wisconsin - Madison ( email )

Wisconsin School of Business
975 University Avenue
Madison, WI 53706
United States

Adam Presslee (Contact Author)

University of Waterloo - School of Accounting and Finance ( email )

Waterloo, ON
Canada

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