The effect of reward frequency on performance under cash rewards and tangible rewards

Abstract

Recent trends in incentive compensation highlight two important features regarding performance-based rewards: (a) firms are offering rewards more frequently, and (b) firms are increasingly using tangible rewards in lieu of cash rewards to motivate employees. This study investigates how reward frequency and reward type jointly influence employee performance. Drawing on both economic and behavioral theories, we predict and find that increasing reward frequency has a more positive effect on overall employee performance for cash rewards than for tangible rewards. We also predict and find that this overall effect stems from differential responses to increasing reward frequency over time as the performance effect grows over time for cash rewards while it remains relatively stable over time for tangible rewards. Results of our study contribute to both theory and practice by enhancing our understanding of the role reward frequency plays in motivating employee performance, and how its efficacy is affected by reward type.