WHILE CONVENTIONAL WISDOM is that "cash is king" when it comes to sales contest rewards, using non-cash rewards such as gift cards also can be effective in motivating sales employees. We conducted a study at 54 independent home furnishing retailers to test the performance effects of gift card rewards compared to cash rewards. The findings suggest that companies may want to consider using gift cards rather than cash as rewards in sales contests because gift cards are particularly effective at motivating poorer-performing sales employees.
Sales employees competed in two consecutive three-month sales contests in which the top salespeople won a reward. At some retail locations, sales employees competed for cash rewards. At other locations, employees competed for gift cards of their choice from a list of local restaurants and retailers.
At the end of each month, sales employees received feedback, including their own total sales and their relative ranking in the competition up to that point. Winners were announced shortly after the end of the third month of each sales contest.
While we found no difference in sales revenue in the first contest between sales employees pursuing cash vs. gift card rewards, employees pursuing gift card rewards in the second contest had significantly higher sales revenue. Overall, incentivizing sales contest winners with gift card rewards compared to cash rewards led to higher sales revenue over the course of both sales contests.
Perhaps more surprising, it wasn't the performance of the contest winners that explains these results. Rather, it was the employees who didn't win the first sales contest. These employees were less likely to give up in the second sales contest when pursuing gift cards rather than cash rewards. Put simply, gift card rewards were more effective at sustaining the motivation of the poorer-performing sales employees.
A DIFFERENCE IN PERCEPTION
The study was inspired by the competing perspectives offered by traditional economic theory vs. psychology theory in terms of what motivates employees. The economic intuition behind the conventional wisdom for using cash rewards is straightforward: Sales employees should value cash rewards more than gift card rewards because there are no constraints on how cash can be used.
While this perspective is widely held by managers, emerging evidence suggests that it isn't the predominant way employees actually value different types of rewards such as cash...