Sales Incentives – Cash Vs. Other Rewards Revisited

The “Cash Vs. Other Rewards” debate is one that seems will ever continue in the loyalty programs and sales incentives space.  Rather than pretending that ours is the definitive voice, I humbly present this as another layer to add to the ongoing conversation.

I say humbly, because I was actually blown away by some statistics in this article in Inc. which shares some (slightly old) data suggesting that non-cash rewards performed better than cash in a test run by The Goodyear Tire & Rubber Company back in 1994.

Duke professor Dan Ariely, who specializes in behavioral economics, explains the study:

“First they ranked their 60 retail districts according to previous sales, then divided them into two groups of equal performance and assigned one group to receive monetary incentives [for selling a new line of tires] and the other to receive tangible incentives of equal value to the first group… It turned out that the tangible-reward group increased sales by 46% more than the monetary-reward group.

“One explanation,” Ariely continues, “. . . is that we can visualize tangible rewards (imagine yourself on a Hawaiian beach), which creates an emotional response. Money, on the other hand, is not accompanied by images as often (aside from maybe Scrooge McDuck swimming in piles of it), and lacks the emotional pull that tangible rewards have, so [it’s] less effective in motivating employees.”

You Must Examine The Big Compensation Picture

That 46% sales difference is a remarkable statistic to digest because it is so far off from a recent study I conducted on behalf of 360, where 100% of the front-line sellers I interviewed said “cash is king.”   But then I realized what makes my data incomplete – I’m only going by what the RSAs are saying and didn’t have access to any data on how they are actually performing.

What I did have access to, however, was to speak directly with their sales managers who assured me that, while most sales associates will always ultimately do what’s right for their customer, the brands with the best cash rewards system are the brands that are getting shown first on the sales floor.

So here is what makes the view into the Inc article’s data incomplete: it is very important when you are planning a rewards program (or examining the success of one!) to look at the rest of the picture of how the salespeople are being compensated.   Here are two examples of what I mean.

1.  Spring 2013 Survey Of Appliance Salespeople

I went into this study with anecdotal information gathered from our team that many sales people were counting on spiffs for up to 70% of their income.   By the time I had visited salespeople in Newark, Nashville, Memphis, Little Rock and Los Angeles I learned that in the appliance space, most of the front-line sellers from my sample group currently count on spiffs for closer to 90% of their income.  (NOTE: this data set is pulled from high-performing independent retail chains, no national brand chains)

As one 30 plus-year veteran told me:

“It used to be the spiffs were a nice little bonus you got when you sold, but in the past few years with margins getting lower, commissions getting lower and base pay almost going away…you really need those spiffs.   I pay my mortgage with those spiffs now, I pay for my house, my car, my life…”

What does it mean? It means that for these particular folks, things have changed.   In the current economy, sales spiffs are less of a frill – these folks are highly dependent on sales incentives just to earn their base living.   The excitement of “picturing” themselves in beach vacation settings and other rewards may have been replaced with a very conscious need to ensure that every effort they expend in their work is preserving their family’s way of life.  This is not to say that aspirational rewards may not still be as powerful in the subconscious mind as they were back in 1994 – humans don’t evolve that quickly – but for salespeople with very common responsibilities in life such as house and car payments, sports, donations, schooling, health etc. they are acutely aware that at work they need to move in the direction of the money.

2.  Spring 2012 Survey Of Independent Landscape Contractors

This survey was slightly more scientific in that it was administered in the exact same way (via email) across the test group with a menu of pre-selected answers and no opportunity for discussion, clarification on answers or the addition of previously unknown factors to the survey.

Just over 1000 independent contractors were surveyed about which rewards they would prefer from a materials vendor.   The menu of choices included cash, branded goods, marketing support and advertising co-op budget.  In this survey, 98% of the contractors chose cash, with the remaining 2% spread across branded goods and advertising co-op.

What does it mean? For the most part, the independent contractors are more in control of their income than the group above.   The appliance sales reps have bad days – bad weather, bad luck and other factors can reduce foot traffic in their location and they can actually have a day where they sell nothing and therefore make almost no income.

The independent contractor, on the other hand, tends to price out their own jobs – they are not even going to work at all without knowing that they have an agreement in place to get paid a certain amount of money for their work.   This being the case, even in a price-sensitive space such as contracting, they are much more likely to be satisfied with the amount of money they are getting for doing their work and more likely to be open to aspirational rewards.    As the data shows, cash is still a huge driver when you ask them and, as I mentioned above, we do not have data on their actual performance to get the incentives.

The main learning is a variation on a principle I see across so many successful businesses right now: let user experience guide your decision making.   In this case, the user experience is your front-line sellers interaction with your rewards program.   Are they engaged with the program?   Are you getting a sales lift?   If not, perhaps it is time to have a closer look at how it fits into their total compensation in their job.

So is this the final word on this debate?

I’d love to be the guy who thinks that he’s got the final word on this but, as a colleague at another incentives company noted on LinkedIn “everything adds to the discussion.”

Jason King 360 IncentivesJason is the Content and Community guy at Connect with Jason on Twitter @JayKing71LinkedIn or Google+  360 is changing the world of incentives.  To find out how, book a call with us now!