Monetary vs Non-Monetary Rewards: What's the Difference?

Why do some employees work harder than others? Is it because they get bigger rewards or are they simply motivated to do well at their jobs? What can be done to motivate employees who might not be as intrinsically motivated as you’d want them?

Rewards have always ruffled some feathers in the past. While these questions are admittedly simple, they have a lot of context behind them. 

If you’re a manager or an HR, you might often come across this problem at work. You would agree that motivated and productive employees are a critical element for organizational success, regardless of the company size or industry. 

Offering rewards is a common approach that employees usually take, and there are two main types of rewards: monetary rewards i.e cash offered to individuals based on assessments of their performance, or non-monetary rewards such as making them a part of a thriving community, offering flexible working hours, paid leaves, health insurance, and more. 

In 2020, a majority of employers said they had either increased or maintained some important benefits related to the pandemic. 78% of employers said they had expanded on telework options and 39% said they expanded offerings related to child care. Further, retirement benefits, which ranked second only to healthcare benefits since 2019, significantly dropped in rank importance behind other benefits categories. 

What’s interesting, there’s no one-size-fits-all approach when it comes to incentives. Although it's important to retain top talent and build a community that works towards a shared goal, there are a lot of challenges along the way. For instance, how do you measure the impact of different rewards, both monetary and non-monetary, on the employee’s well-being? 

In this article, I’ll help you understand the key differences between when to use monetary vs non-monetary rewards, whether or not monetary rewards improve performance, the type of rewards you should consider to boost employee engagement, and which programs outperform others (and why). 

Challenges with rewards - and how it impacts you in the long run

Rewards don’t just impact someone’s first 30 days, instead, it sets the intention for how they will perform in the future, succeed for much longer, and whether they will stick around with your organization and develop company loyalty. 

Here’s what most managers and talent acquisition teams miss: 

1. There’s no long term reward strategy

Most companies reward their employees annually or bi-annually. While the conventional talent pool was satisfied - or not - with this regime, trends like the Great Resignation and the Great Hire after the pandemic have brought significant changes in the employee-employer relationship. 

With the power being shifted from companies to candidates and employees, it’s crucial for you to think of rewards as a long term process that doesn’t just take place twice a year. And this doesn’t even have to be a monetary reward every time. 

Things as simple as regular check-ins with the team, celebrating small project wins together, gifting shopping cards on birthdays, and the biggest of all - creating a positive environment where your team members feel heard and seen is one of the biggest rewards managers can truly give their employees. 

These small steps also help you realign with the employee’s expectations or goals as the nature of their work shifts. Without constant touchpoints, you’re tossing employees into the deep end and thinking they’ll swim right back to you. 

2. Rewards should be generic and applied in an umbrella fashion

Rewards should be created equal, but not generic. Sure, you can and should use a fair process to evaluate each employee. 

However, every team and role has unique requirements that need to be addressed in a more tailored manner. The more specific and personalized your rewards are, the more it reflects how you’re invested in the employee’s success. 

For instance, if Steve is an adventure sports fan who loves hiking and Kristen is an enthusiastic baker who bakes lip-smacking cookies and lemon tarts on the weekends, consider the fact that they are two very different characteristics. And so, the non-monetary rewards you’ll offer them should align with their interests. 

Research and subsequent surveys have yielded surprising evidence about the effectiveness of monetary vs non-monetary rewards and the elements behind their success. Sure, money is a powerful motivator and the most foundational form of compensation. But is it the only motivator? Turns out, monetary rewards are important but not enough. In order to really keep employees happy, organizations must have a strong blend of both monetary and non-monetary rewards. 

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What are monetary rewards and when to use them?

Monetary rewards are rewards given to employees that have a definitive monetary value - something that hits their bank account or can be liquidated in the future. The thing with monetary rewards is that they provide instant gratification. The basic “law of behavior” states that higher incentives tend to yield higher effort and performance. 

When you set performance goals for your employees, consider adding a “value” to the hard work and efforts to motivate them to work toward a goal successfully. The most obvious example of a monetary reward is cold hard cash. 

Hit your sales quota? Here's an extra $1000 cash that goes on the end of your paycheck.  

Other examples of monetary rewards include:

• Stock options
• Profit sharing

A salary increase is a common form of monetary reward. It’s a payment made to employees based on their performance. For example, a company might give its top engineer a 10% raise. 

Bonuses are another common form of monetary reward for employees. A bonus is a payment given to employees after they complete a specific task. For example, a software developer might receive a $1,000 bonus if he completes his assigned tasks within a week.

What are non-monetary rewards and when to use them?

Non-monetary rewards are those that don't have an explicit dollar value tied to them or in other words can't be redeemed for cash. While some may argue the relationship between non-monetary rewards and an employee’s output is not proven, they’ve become more than a trend now and are here to stay longer, for good. 

According to reinforcement theory, when people experience positive results as a result of their behavior or actions, they’re more likely to repeat them. A non-monetary reward is a case in point. So when employees are rewarded from their organization, they tend to be more committed to specific, attainable goals in a sustainable way. 

Don't sleep on the motivating power of non-monetary rewards. They work.

By setting personal goals for employees that are tied to your organization’s shared values, you can encourage them to push themselves. Here are a couple of examples of non-monetary rewards: 

1. Personal Growth

Working at a job can give you opportunities to learn new things and grow personally. It can also help you develop new skills and improve your knowledge base. 

Consider creating a “growth plan” at the beginning of the year with your employees. Understand where they want to grow - it could be something as simple as they want to read more, go to the gym thrice a week, or simply eat healthy. 

2. Career Advancement

A career path can be very rewarding. Some people naturally enjoy the challenge of learning something new every day. Others might find that they love their current position and want to keep climbing the ladder. 

As a manager or a talent acquisition professional, you need to encourage them by goal setting. 

3. Professional Development

Employees often receive training and education from their organization. The key is to make learning experiences more interactive, real, and actionable.

A great example is Agile training. Most companies today use the agile software development methodology, and while it’s a challenging concept to teach your fresh hires, organizations leverage interactive ways to boost engagement. 

One of the videos that’s almost always used by professional Agile institutions and corporations is the IDEO Shopping Cart video. After employees watch this video, they’re made to replicate the process - ideation, brainstorming, development, reiteration, testing, and deployment - with children’s playing blocks, colored clay, and more.  

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4. Social Benefits

Many companies offer benefits to employees beyond salary. Some of these include health insurance, retirement plans, flexible hours, paid leave, and even discounts on products and services. Approach rewards from a whole-life perspective. Think of the day-to-day activities you do. 

Which parts of your life could be made easier by your employer without affecting your efficiency or the organization's goals? Is it remote work? Is it having 6 months of maternal or paternal leave? Is it working 3-days from the office and 2 days from home?

5. Community Involvement

Being part of a community can be incredibly rewarding. You can feel a sense of belonging and purpose by helping others. And you can often find that your contributions go far beyond the scope of your job description. 

Create a fitness club where employees can discuss their achievements or losses; provide 15-minutes where employees can teach each other skills, or create a Slack channel for a “weekend recap” asking members to share pictures of their weekend. 

6. Extrinsic Non-Cash Rewards

These are fun things like:

• Gift cards
• Company swag (t-shirt, backpack, hat etc.)
• Products
• Food

Shortcomings of Monetary Rewards

Bonuses and incentive pay schemes are often the primary means to boost employees’ productivity, efficiency, and profits. But there are a lot of important nuances about monetary incentives. 

Should employees be provided with financial incentives for increased cross-team collaboration, shorter deadlines, or better performance? Will financial incentives encourage higher contributions to the company’s community-building events, like blood donations? 

While monetary rewards are great for “adding the extra push” and getting people to achieve more goals, these incentives could backfire, if not combined with additional incentives. Talent acquisition leaders agree that most actions or goals are primarily achieved by intrinsic motivations. 

Here are some of the potential pitfalls of using only a monetary reward program: 

• If monetary bonuses are used continually, employees might perceive them as an entitlement rather than a motivator.
• Monetary rewards can have unexpected consequences if you, as an employer, are not clear on the action or goal you hope to incentivize. For example, a large part of salespeople’s salaries traditionally used to be commission-centric. This not only was a poor metric to understand the profitability of their sales but a negative way to put employees, especially of the same team with a common goal, against each other.
• This type of program can sometimes create a sense of inequality. A common scenario is when “top” employees often receive monetary incentives and bonuses, and those who barely missed their goal are not rewarded. This becomes a drag on employee morale and even teamwork. 
• Over time, it’s difficult to sustain engagement and participation from employees through merely monetary motivation. 

Shortcomings of Non-Monetary Rewards

Employees seem to attribute a greater value to gifts, even if they can put a dollar value on them. As a manager, you might not see the difference between a $1,000 bonus check and a $1,000 laptop. However, from the perspective of an employee, they’ll probably show greater enthusiasm and acknowledgment for tangible things they can use, like a laptop, a gift card, or a vacation. 

There are some downsides of non-monetary rewards as well: 

• High-performing employees who value money and other monetary incentives might not find non-monetary incentives rewarding or motivating. 
• Unless personalized, non-monetary rewards are less appealing. For example, if you give a rock climbing package or a Las Vegas getaway to an employee who has never hiked 10 miles or who doesn’t like to gamble. 
• Some employees might feel that their organization isn’t willing to pay for their efforts. 
• Finally, if your competing business offers monetary rewards to its employees, you risk losing your top talent. 

Finding the Right Balance: Monetary vs Non-Monetary Rewards

To strike the right balance between monetary incentives and non-monetary incentives, consider these key pointers:

• Think about a specific goal you want to achieve with your reward program: is it fostering positive company culture, improving cross-functional team collaboration, or boosting learning and development.
• Create a fair system that will reward the right behaviors and encourage positive reinforcement among teams. 
• Maintain a balance of both monetary and non-monetary rewards to ensure a holistic reward program. 
• Use realistic, achievable goals that can be measured. 

Incentives, regardless of monetary or non-monetary, should take into account employees’ needs and interests to ensure they feel encouraged and motivated to participate and engage actively. While there’s no one single way of creating a reward program, you should ideally do a mix of both.