1 s2.0 S0361368222000563 Main

Accounting, Organizations and Society 104 (2023) 101389
Contents lists available at ScienceDirect
Accounting, Organizations and Society

journal homepage: www.elsevier.com/locate/aos
When and why tangible rewards can motivate greater effort than cash
rewards: An analysis of four attribute differences
Jongwoon (Willie) Choi a, *, Adam Presslee b
a
University of Wisconsin-Madison, USA
b
University of Waterloo, 3161 Hagey Hall, Waterloo, Ontario, Canada, N2L 3G1
a r t i c l e i n f o
Article history:
Received 1 August 2019
Received in revised form
9 May 2022
Accepted 30 May 2022
Available online 18 June 2022
1. Introduction 2017; Kelly et al., 2017 (Period 1); Shaffer & Arkes, 2009). These
mixed results, coupled with proponents’ claim about the motiva-
We examine the effects of cash versus tangible rewards on tional effects of tangible rewards, serve as the motivation for the
employee effort, with a focus on four commonly cited attribute focus of our paper, which is to better understand when and why
differences between the reward types. Tangible rewards are non- tangible rewards can be more motivating than cash rewards.
cash incentives that are restricted in use, but have non-trivial Consistent with prior research on tangible rewards (Kelly et al.,
monetary value (Presslee et al., 2013). Common examples include 2017; Presslee et al., 2013), we use mental accounting theory
gift cards, recreational trips, and merchandise. The use of tangible (Thaler, 1985, 1999) as a lens for understanding proponents' claim.
rewards to motivate employees is widespread and growing. In a Mental accounting theory asserts individuals use a similarity-based
recent survey, 84 percent of surveyed firms in the United States categorization process to combine similar outcomes e including
report offering tangible rewards, spending more than $90 billion financial gains and losses e into the same category or mental ac-
dollars annually (Incentive Federation, 2016). This is a marked in- count (Henderson & Peterson, 1992; Rosch & Mervis, 1975).
crease from 2013 (2007) when 74 percent (34 percent) of surveyed Importantly, outcomes are subject to diminishing marginal value,
respondents reported using tangible rewards, spending $76 ($46) such that the positive (negative) marginal value of gains (losses) is
billion dollars annually (Incentive Federation, 2007, 2013). diminishing for each additional gain (loss) that is categorized into a
Proponents of tangible rewards claim they are more motivating given mental account. As a result, individuals perceive greater
than cash rewards because of greater reward distinctiveness e subjective value for two gains (e.g., an employee's salary and
employees perceive cash rewards as simply “more salary,” but reward) that are categorized into different mental accounts than
tangible rewards as being distinct from salary (Flanagan, 2006; when the same two gains are categorized into the same mental
Odell, 2005). Yet, prior research finds mixed results comparing the account (Thaler & Johnson, 1990).
effects of tangible versus cash rewards on employee effort. Some Applied to our setting, mental accounting theory predicts a
find tangible rewards lead to more effort (Cardinaels et al., 2021; tangible reward can be relatively less susceptible to the diminishing
Heninger et al., 2019; Jeffrey, 2009; Kelly et al., 2017 (Period 2)), marginal value associated with gains when employees perceive less
others find tangible rewards lead to less effort (Kachelmeier et al., similarity between the tangible reward and their salary than they
2020; Presslee et al., 2013), and yet others find cash and tangible do between a cash reward and their salary. That is, employees will
rewards motivate similar levels of effort (Bareket-Bojmel et al., be more motivated to earn the tangible reward when they assess its
greater reward distinctiveness.
We examine how potential differences in reward attributes
* Corresponding author. 4182 Grainger Hall, Madison, WI, USA, 53706 between cash and tangible rewards facilitate differences in reward
E-mail addresses: willie.choi@wisc.edu (J. Choi), capressl@uwaterloo.ca
distinctiveness. We focus on four attribute differences between
(A. Presslee).
https://doi.org/10.1016/j.aos.2022.101389
0361-3682/© 2022 Elsevier Ltd. All rights reserved.
J. Choi and A. Presslee Accounting, Organizations and Society 104 (2023) 101389
cash and tangible rewards commonly cited as contributing to dif- greater effort. We manipulate reward distinctiveness in Study 3 by
ferences in reward distinctiveness between cash and tangible re- framing the reward either jointly with salary or separately from
wards (Alonzo, 1996; Balk, 2017; Flanagan, 2006; Jeffrey & Shaffer, salary (discrete framing). Thus, the results of Study 3 complement
2007; Luckey, 2009; Next Level Performance n.d.). The four attri- those from Study 1 and 2 by highlighting the importance of discrete
bute differences are: framing as an important attribute difference between cash and
tangible rewards.
1. Fungibility (More versus Less): As with their salary, employees Since understanding how potential differences in reward attri-
can more easily use cash rewards to obtain desired goods/ser- butes between cash and tangible rewards affect effort via differ-
vices; by definition, tangible rewards are restricted in use. ences in reward distinctiveness is the primary contribution of our
2. Hedonic Nature (Utilitarian versus Hedonic Consumption): As with paper, and the results of Studies 1e3 form the basis of that
their salary, employees tend to use (spend) cash rewards in contribution. In Study 4, we seek to complement the prior three
more utilitarian ways, while tangible rewards are often hedonic studies and offer evidence of the “net” effects of the four reward
in nature, and represent “wants” instead of “needs.” attributes we examine. Specifically, we integrate the results of the
3. Novelty (Less versus More Novel): Novelty is the quality of being prior three studies and examine the effects of cash versus tangible
new or surprising (Novelty, 2022). Employees tend to view cash rewards on effort in an experimental setting using a holistic
rewards as being less novel because they quickly develop an manipulation that varies all four reward attributes. Examining
expectation for the opportunity to earn cash rewards and view whether tangible rewards motivate greater effort than cash re-
the opportunity as being a “built-in” component of their wards when the two types of rewards differ along all four reward
compensation, much like their salary. In contrast, employees are attributes is intriguing in light of the competing effects of fungi-
less likely to develop such expectations for the opportunity to bility observed in Studies 1 and 2. Consistent with proponents'
earn tangible rewards because these rewards are often unex- claims, we find tangible rewards motivate greater effort; partici-
pected, i.e., feel more novel. pants’ performance on a computerized real-effort task is higher
4. Discrete Framing (Joint versus Discrete): With respect to when they are offered a tangible reward, both in terms of “raw”
employee rewards, firms adopt practices that jointly frame cash performance as well as performance goal attainment.
rewards with employees' salary, but frame tangible rewards By focusing on reward attribute differences between cash and
discretely from employees' salary. For example, firms often pay tangible rewards, we complement prior research (e.g., Bareket-
employees their salary and cash rewards in a lump-sum, but Bojmel et al., 2017; Jeffrey, 2009; Kelly et al., 2017; Mitchell et al.,
must pay tangible rewards separately from salary. 2021; Presslee et al., 2013; Shaffer & Arkes, 2009) by going
beyond whether tangible rewards motivate greater effort than cash
The preceding discussion highlights three empirical questions rewards and digging deeper into when and why tangible rewards
related to proponents' claims about the motivational benefits of can motivate greater effort. We find differences in discrete framing,
tangible rewards compared to cash rewards; we present these hedonic nature, and novelty each contribute to the motivational
questions as testable links in our conceptual model (Fig. 1). First, do benefits of tangible rewards. Further, we find each of these differ-
employees perceive differences between cash and tangible rewards ences affect effort (motivation) both individually (Study 2e3) and
in the aforementioned four attributes? Second, do perceived dif- collectively (Study 4). Our results also confirm the greater fungi-
ferences in these reward attributes affect reward distinctiveness? bility of cash rewards generates competing effects that can offset
Third, do differences in reward distinctiveness affect employee the motivational benefits of tangible rewards. Thus, a contribution
effort? Examining these questions can shed light on the validity of of our paper is that we inform firms interested in motivating em-
proponents’ claims, which is particularly important because the ployees using tangible rewards that they are best served to offer
traditional economic perspective implies cash rewards generate tangible rewards that have these attributes, leading employees to
greater expected utility than do tangible rewards because cash is perceive greater reward distinctiveness. Moreover, while we do not
more fungible (Waldfogel, 1993). Thus, tangible rewards may not seek to reconcile the mixed empirical evidence on the motivational
motivate greater effort, even when all four attribute differences are benefits of tangible rewards, we believe our results can inform the
present and employees assess tangible rewards to have greater debate about the motivational benefits of tangible rewards in that
reward distinctiveness. Notably, this implies the greater fungibility our results highlight how differences in reward attributes can be a
of cash rewards produces two competing effects on effort, a point useful lens for understanding the mixed empirical evidence
which prior research on tangible rewards has not examined. regarding the motivational effect of tangible rewards versus cash
We test our conceptual model across four studies. In Study 1, rewards.
participants view tangible rewards to be less fungible, more he- Finally, although we focus on how differences in reward attri-
donic in nature, and more novel than cash rewards. They also butes between cash and tangible rewards lead to differences in
indicate tangible rewards have greater reward distinctiveness than employee motivation, we believe the implications of our paper
cash rewards. Notably, path analysis results are consistent with the extend beyond cash versus tangible rewards, and reinforce a more
predicted links between these reward attributes and reward fundamental point about performance-based rewards. Specifically,
distinctiveness. In Study 2, participants rate rewards that are more rewards are simply constellations of attributes, and firms can alter
hedonic in nature or more novel to be more motivating. They also these attributes to improve the effectiveness of using rewards to
rate rewards that are more fungible to be more motivating. Thus, motivate employee performance. In the context of our paper, for
the results of Study 1 and 2 support the notion that the greater example, cash rewards are rated as less novel than tangible re-
fungibility of cash rewards generates two competing effects. In wards, but firms could deliver the cash rewards in a manner that
Study 3, we conduct an experiment in which we manipulate reward makes them feel more novel (e.g., at a company-wide event pub-
distinctiveness and find greater reward distinctiveness motivates licly recognizing employee performance and achievements). Thus,
2
Fig. 1. Conceptual Model

Note: Link 1 reflects the following research question: Do employees perceive differences in fungibility, hedonic nature, novelty, and discrete framing? Link 2 reflects the following
research question: Do perceived differences in these reward attributes affect reward distinctiveness? Link 3 reflects the following research question: Do differences in reward
distinctiveness affect employee effort? Collectively, the three links culminate in the hypothesis that tangible rewards will lead to greater effort than cash rewards because dif-
ferences between cash and tangible rewards in fungibility, hedonic nature, novelty, and discrete framing facilitate differences in employees' mental accounting of the two types of
rewards.
at a broad level, our emphasis on reward attributes is consistent value prospective and realized gains and losses. Of particular
with Baker, Jensen, and Murphy's (1987) framework that de- relevance to our study is that outcomes exhibit diminishing mar-
composes reward attributes along three dimensions: level (how ginal value: the positive (negative) marginal value of gains (losses)
much to pay), functional form (how to pay) and composition (what is diminishing for each additional gain (loss) that is categorized into
to pay), and with Merchant and Van der Stede's (2017) criteria for a given mental account. Consequently, individuals perceive greater
evaluating the features of performance-contingent rewards (e.g., subjective value for two gains that are categorized into separate
valued, timely, and durable). mental accounts than when the same two gains are categorized
into the same mental account (Thaler & Johnson, 1990).1
2. Background and theory Applied to our setting, mental accounting theory predicts
tangible rewards can motivate greater effort when tangible rewards
2.1. The motivational benefits of tangible rewards are viewed as being more distinct from salary than are cash re-
wards. That is, when employees assess tangible rewards have
Proponents argue tangible rewards are more motivating than greater reward distinctiveness, these rewards are less susceptible to
cash rewards because employees perceive the two reward types the diminishing marginal value associated with gains, making them
differently. Specifically, employees tend to perceive cash rewards as more motivating than cash rewards. The contributions of our study
simply “more salary,” but tangible rewards as being distinct from lie in understanding how potential differences in reward attributes
salary (Flanagan, 2006; Odell, 2005). That is, employees assess between cash and tangible rewards contribute to differences in
tangible rewards to have greater reward distinctiveness. reward distinctiveness.
Mental accounting theory (Thaler, 1985, 1999) provides a
foundation for understanding this claim (Kelly et al., 2017; Presslee
et al., 2013). According to mental accounting theory, people cate-
gorize outcomes (including financial gains and losses) into various
topical mental accounts (e.g., “bills,” “retirement,” or “entertain-
ment”) using a similarity-based categorization process in which 1
More generally, suppose there are two gains, X and Y, and v(X), v(Y), and
outcomes perceived to be similar are categorized into the same v(X þ Y) capture the subjective value of X, Y, and the combined “total” gain of X and
category or mental account (Henderson & Peterson, 1992; Rosch & Y, respectively. Research finds v(X) þ v(Y) > v(X þ Y) because gains are subject to
Mervis, 1975). This categorization affects how people subjectively diminishing marginal value (Thaler, 1985; Thaler & Johnson, 1990).
3
2.2. Four commonly cited attribute differences between cash and 2017; Luckey, 2009). Proponents argue employees find it difficult
tangible rewards to justify spending cash rewards in a fun or frivolous way, and
instead spend them in a more utilitarian fashion by paying off bills,
Both prior research and proponents of tangible rewards point to buying groceries, and meeting other basic “needs” (Adams, 2021;
several potential attribute differences between cash and tangible Statista, 2012). In contrast, tangible rewards are often hedonic
rewards as possible reasons for why tangible rewards can motivate goods and services, representing “wants” that people find difficult
greater effort (e.g., Alonzo, 1996; Balk, 2017; Flanagan, 2006; Jeffrey to justify purchasing on their own.
& Shaffer, 2007; Luckey, 2009; Mitchell et al., 2021; Next Level These differences in how employees consume cash and tangible
Performance n.d.; Presslee et al., 2013). However, whether cash rewards are notable because employees use the bulk of their salary
and tangible rewards tend to differ in attributes and if so, whether on utilitarian expenses like housing, food, healthcare, trans-
these differences actually affect employees’ mental accounting of portation, and taxes (Frankel, 2018).3 Thus, cash rewards are more
the reward and their effort, remain empirical questions. likely to have less reward distinctiveness because both salary and
We investigate the effects of four commonly cited attribute cash rewards are typically spent in similarly utilitarian ways. In
differences that prior research and proponents argue will affect contrast, tangible rewards are more likely to have greater reward
how employees subjectively value the reward, and in turn, their distinctiveness because salary and tangible rewards are less likely
motivation to earn it: (1) fungibility (more versus less), (2) hedonic to be spent or consumed in similar ways.
nature (utilitarian versus hedonic consumption), (3) novelty (less Recent studies provide preliminary support for the motivational
versus more novel), and (4) discrete framing (joint versus discrete). benefits of offering hedonic rather than utilitarian rewards. First, in
Beyond being commonly cited, these differences also offer more a field experiment using a repeated (two sequential) tournament
generalizable implications regarding the motivational benefits of setting with home furnishing retailers, Kelly et al. (2017) find re-
tangible rewards, as they apply to a broader set of tangible rewards tailers offered a hedonic tangible reward outperform retailers
than do other mentioned differences.2 offered a cash reward in the second tournament because retailers
who lost in the first tournament pursuing hedonic tangible rewards
2.2.1. Fungibility (more versus less) subsequently outperformed those who lost while pursuing cash
Fungibility refers to the ease with which people can use the rewards. Second, using a free-sort task, Mitchell et al. (2021) find
reward to obtain desired goods and services. By definition, tangible support for the effects of hedonic nature on mental accounting, as
rewards are less fungible (more restricted in use) than cash re- they find salary is more commonly categorized with utilitarian
wards. This difference in fungibility can have two countervailing items than with hedonic items. Mitchell et al. (2021) also conduct a
effects. On the one hand, proponents and recent studies argue the laboratory experiment in which participants perform a computer-
restricted use attribute of tangible rewards lead employees ized real-effort task under a piece-rate incentive compensation
perceive tangible rewards to have greater reward distinctiveness scheme, and find participants offered a hedonic tangible reward
(Jeffrey & Shaffer, 2007; Presslee et al., 2013). Conversely, cash re- outperform participants offered a utilitarian tangible reward.
wards have less reward distinctiveness because cash is equally
fungible. Thus, all else equal, tangible rewards are less fungible but 2.2.3. Novelty (less versus more novel)
more distinct from salary than cash rewards are from salary, which Novelty is the quality of being new or surprising (Novelty, 2022).
mental accounting theory suggests would lead tangible rewards to Proponents argue tangible rewards are more motivating because
be more motivating than cash rewards. tangible rewards are perceived to be more novel, and perceptions of
On the other hand, the traditional economic perspective sug- novelty reflect the degree to which employees develop an expec-
gests the greater fungibility of cash rewards will generate greater tation of the reward. In particular, employees can quickly treat cash
expected utility and thus, be more motivating than tangible re- rewards as an expected source of compensation, much like their
wards because cash can be more easily be used to obtain desired salary (Balk, 2017; Flanagan, 2006; Luckey, 2009). In contrast,
goods and services (Waldfogel, 1993). Consistent with this tangible rewards feel more unexpected (a surprise). This phe-
reasoning, individuals express a clear preference for cash rewards nomenon likely relates to differences in fungibility and hedonic
over tangible rewards when given a choice between the two types nature discussed earlier. For example, according to Michael Dermer,
of rewards, as the difference in fungibility becomes quite salient President and CEO of IncentOne, a rewards management company,
(Jeffrey, 2009; Shaffer & Arkes, 2009). Thus, differences in fungi-
bility between tangible rewards and cash are expected to have two Employees view cash incentives and awards as part of their
countervailing effects on effort, and the net effect of these coun- annual compensation. Because those dollars just become part of
tervailing forces is unclear. what you take home, there’s nothing special about them. [The
money] tends to get spent paying bills, and you don’t really do
anything that’s memorable, so there’s no lasting effect relative
2.2.2. Hedonic nature (utilitarian versus hedonic consumption) to the dollars that you’re putting into those incentive schemes. It
Hedonic nature refers to the extent to which the reward can be just becomes part of that fungible pile of money that you find a
used to obtain goods and services that are relatively more practical way to spend every month and every year (Flanagan, 2006).
and necessary in nature (utilitarian) or relatively more fun and
exciting in nature (hedonic). Proponents and recent studies argue
tangible rewards are more motivating than cash rewards due to Consequently, employees often feel as if their salary has been
differences in how the two types of rewards are spent or consumed cut when they fail to attain the cash reward or the cash reward
(Balk, 2017; Flanagan, 2006; Jeffrey & Shaffer, 2007; Kelly et al., incentive pay program is discontinued (Flanagan, 2006; Odell,
2005). In contrast, employees are less likely to develop a similar
2
For example, some proponents suggest tangible rewards may be more moti-
3
vating because they have greater “trophy value” (Jeffrey & Shaffer, 2007). However, This is consistent with the popular “50-30-20” financial rule of thumb which
arguments about the motivational effects of trophy value apply only to material recommends spending 50 percent of (after-tax) income on “needs” like paying bills
tangible rewards (a TV) and not to experiential rewards (a vacation). In contrast, the and buying groceries, spending 30 percent on “wants” like shopping and other
differences we examine apply to both material and experiential tangible rewards. entertainment, and allocating 20 percent on savings and retirement (Pant, 2018).
4
expectation for tangible rewards because the use of tangible re- whether a reward was earned, and the type of reward (if earned),
wards is more novel (Balk, 2017). could affect participants’ responses. Third, participants may simply
view any earnings from a laboratory study as windfall gains or in
2.2.4. Discrete framing (joint versus discrete) other ways that depress any perceived differences between earn-
Discrete framing reflects the practices firms adopt that frame ings that reflect salary versus earnings that reflect performance-
rewards jointly with salary versus discretely from salary.4 Pro- based rewards (Arkes et al., 1994; Milkman & Beshears, 2009).
ponents argue tangible rewards are more motivating because Given multiple theoretical mediating variables (as in our concep-
tangible rewards are more likely to be presented as being distinct tual model), this reduces the effectiveness of using a single exper-
from an employee's salary than are cash rewards (Balk, 2017; iment to detect differences in effort between participants pursuing
Flanagan, 2006; Jeffrey & Shaffer, 2007; Luckey, 2009; Odell, 2005). cash rewards and those pursuing tangible rewards. In fact, this may
How firms pay compensation to employees may facilitate differ- at least partially explain the mixed results related to the perfor-
ences in the framing of the reward. For example, firms often pay mance effects of cash versus tangible rewards between laboratory
cash rewards together with salary in a lump-sum, but must pay and field studies (Kelly et al., 2017). Thus, using theoretical medi-
tangible reward separately from salary. Thus, employees may view ation reduces the risk of type 2 errors of failing to reject an incorrect
cash rewards as merely generating a slightly higher paycheck, and null hypothesis.
not as a separate gain earned for outstanding job performance. That In Study 1, we examine whether cash and tangible rewards
is, employees may view their salary and cash reward as one slightly differ in terms of fungibility, hedonic nature, and novelty, and
bigger gain rather than as two separate gains. In contrast, em- whether these differences affect reward distinctiveness (Fig. 1,
ployees may be more likely to view their salary and tangible re- Links 1 and 2). We do not examine the attribute of discrete framing
wards as two separate gains rather than as one larger gain because in Study 1 because doing so would involve explicitly informing
tangible rewards cannot be paid in a lump-sum and must be paid participants about the different ways that the reward can be framed
separately from an employee's salary. Such framing effects have relative to salary, and framing effects largely disappear when par-
likely strengthened over time, as technological innovations like ticipants are explicitly made aware of the different possible frames
direct deposit have made it easier for cash rewards to be lumped in (Cheng & Wu, 2010). However, we return to discrete framing in
with salary and other cash-based income (Flanagan, 2006). Section V when discussing Study 3. In Study 2, we examine whether
differences in reward attributes affect effort intentions (Fig. 1, Links
2 and 3). In Study 3, we examine whether reward distinctiveness,
2.3. Hypothesis and testing approach manipulated through discrete framing, affects motivation (Fig. 1,
Link 3).6
The preceding discussion highlights three empirical research Finally, in Study 4, we build on the insights from the previous
questions comparing the motivational benefits of cash versus three studies to examine whether tangible rewards motivate
tangible rewards. First, do employees perceive differences between greater effort than do cash rewards when differences in all four
cash and tangible rewards in the aforementioned four attributes? attributes are all present. Since the primary contribution of our
Second, do perceived differences in these reward attributes affect paper lies in understanding how potential differences in reward
reward distinctiveness? Third, do differences in reward distinc- attributes between cash and tangible rewards affect effort via dif-
tiveness affect employee effort? In Fig. 1, we present these three ferences in reward distinctiveness, Studies 1e3 serve as the pri-
research questions as testable links in our conceptual model. Links mary tests of our conceptual model. That said, Study 4 offers an
1, 2, and 3 in our conceptual model correspond to the first, second, opportunity to provide evidence on the “net effects” of the four
and third research questions, respectively. Based on the preceding reward attributes we examine in our paper. To do so, we use a
discussion, the three links in our conceptual model culminate in the holistic manipulation of reward type in Study 4 that varies all four
hypothesis that tangible rewards will lead to greater effort than reward attributes.7
cash rewards via the four attribute differences (fungibility, hedonic
nature, novelty, and discrete framing) that facilitate differences in
3. Section III. Study 1 method and results
employees’ mental accounting of the reward.
We use four studies to test for theoretical mediation as shown
3.1. Participants
by our conceptual model (Asay et al., 2019; Spencer et al., 2005).5
We use multiple studies and test for theoretical mediation as
We recruit 155 participants from Amazon's Mechanical Turk
opposed to traditional statistical mediation for three reasons. First,
(MTurk) to complete Study 1. MTurk participants are more repre-
asking participants questions about their perceptions of reward
sentative of the general population than traditional laboratory
attributes and mental accounting prior to completing a real effort
participants (Buhrmester et al., 2011). Moreover, Farrell et al. (2017)
task can inflate both type 1 and type 2 errors by priming partici-
find MTurk participants and traditional laboratory participants
pants to view the rewards and their attributes in specific ways
exhibit similar performance on a variety of accounting tasks.
(Mitchell et al., 2021). Indeed, prior mental accounting research
We require MTurk participants to meet four criteria: (1) be
relies almost exclusively on decisions and behavior to provide ev-
located in the U.S., (2) be at least 18 years old, (3) have completed
idence of mental accounting as opposed to measuring the mental
over 1000 MTurk tasks (HITs), and (4) have at least a 95% approval
accounting process within the same study. Second, asking partici-
rating on prior HITs. Ninety-seven participants (63 percent) are
pants questions about their perceptions of reward attributes and
mental accounting after completing a real effort task can introduce
noise because extraneous factors such as performance on the task, 6
We conducted Studies 3 and 4 prior to 2020 such that COVID-related issues and
precautions did not apply.
7
In contrast to Studies 1e3, in which we can isolate effects of each individual
4
Discrete framing differs from reward distinctiveness in that discrete framing reward attribute, the holistic manipulation we use in Study 4 limits our ability to
reflects firms' practices related to how they present or deliver employee rewards, isolate how each individual reward attribute contributes to any observed difference
while reward distinctiveness reflects employees' perceptions of the reward in in effort between cash and tangible rewards. We discuss this issue further in Sec-
response to firm practices for presenting or delivering the reward. tion VI, and we highlight opportunities for future research to address this issue in
5
We obtained IRB approval for all four studies. Section VII.
5
male, and participants’ average age is 36.1 years. Participants Path analysis results are also consistent with our expectations.
receive $2 USD for completing the study, and on average, partici- Our path analysis simultaneously tests the associations between
pants complete the study in just under 6 min. Reward Type (0 ¼ cash rewards, 1 ¼ tangible rewards) and Fungi-
bility, Hedonic Nature, and Novelty, and between these three attri-
3.2. Procedures and measures butes and Distinctiveness (Kline, 2011). We allow Fungibility,
Hedonic Nature, and Novelty to co-vary, and bootstrap the standard
We administer the study using Qualtrics. After providing their errors in the path analysis model using 10,000 replications (Hayes,
informed consent, participants receive the following definitions of 2018). We also cluster standard errors by participant to address the
cash and tangible rewards: potential for correlated error terms due to multiple observations
from the same participant. The path model fits the data well:
Cash Rewards: Cash rewards are monetary payments for good CFI ¼ 0.98; SRMR ¼ 0.03 (Kline, 2011).
performance at work. Consistent with our paired t-test results, Fungibility is higher for
Tangible Rewards: Tangible rewards are non-monetary pay- cash rewards (p < 0.01) while Hedonic Nature and Novelty are
ments for good performance at work. The payments are higher for tangible rewards (p < 0.01 for both measures). Impor-
restricted in use, but have financial value. Examples of tangible tantly, Fungibility is negatively associated with Distinctiveness
rewards include redeemable points, gift cards, trips/travel, and (p ¼ 0.02), while Hedonic Nature and Novelty are positively associ-
merchandise. Notably, tangible rewards are not tokens of ated with Distinctiveness (p < 0.01 for both attribute measures).
appreciation or non-financial recognition (e.g., thank you note). Collectively, these results are consistent with our expectations for
Links 1 and 2 and corroborate proponents’ claims regarding those
Then, participants receive the following definitions of the three links.
reward attributes and reward distinctiveness:
4. Section IV. Study 2 method and results
Fungibility: the reward can easily be used to obtain goods and
services. 4.1. Overview
Hedonic in nature: the reward is used to consume “wants”
instead of “needs.” The results of Study 1 are consistent with proponents’ claims
Novelty: the reward is novel and unique. about the difference in attributes between cash and tangible re-
Distinctiveness: the reward feels distinct from salary, and not wards, and how these differences affect reward distinctiveness. In
simply “more salary.” Study 2, we build on the results of Study 1 and examine whether
fungibility, hedonic nature, and novelty affect effort intentions
Then, participants indicate how likely they think cash and (Fig. 1, Links 2 and 3).
tangible rewards are to have each attribute and the reward
distinctiveness of each type of reward (eight likelihood assess-
4.2. Participants
ments total). Participants respond using a 7-point scale with end-
points of 3 (very unlikely) and þ3 (very likely). We
We recruit 441 participants from MTurk. We require partici-
counterbalance whether participants assess cash or tangible re-
pants to meet the same four criteria as in Study 1, and we prohibit
wards first. By and large, our results are inferentially similar across
Study 1 participants from completing Study 2. One hundred eighty-
the two orders; thus, we do not include order as a variable in our
four participants (42 percent) are female, and the average age is
analyses.8 Finally, participants provide demographic information.
36.6 years. Participants receive $1 USD for their participation and
on average, participants complete the study in just under 6 min.
3.3. Results
4.3. Procedures, independent variables, and dependent variable
We analyze participants' assessments using paired t-tests and
path analysis. We use participants’ assessments to create four
We administer the study using Qualtrics. After providing their
measures: Fungibility, Hedonic Nature, Novelty, and Distinctiveness.
informed consent, we ask participants to imagine they are an
Table 1, Panel A reports descriptive statistics and Table 1, Panel B
employee of a company that offers them a reward for good job
reports the path analysis results. We report one-tailed p-values
performance in addition to their salary. We use a 3 x 2 between-
unless stated otherwise.
participants design in which we vary fungibility, hedonic nature,
Untabulated pairwise t-tests of each measure are consistent
and novelty, each at two levels, and randomly assign participants to
with expectations. First, Fungibility is higher for cash rewards than
one of the six conditions. We describe the reward in each condition
for tangible rewards (p < 0.01). Second, Hedonic Nature is higher for
as follows:
tangible rewards than for cash rewards (p < 0.01). Third, Novelty is
Fungibility:
higher for tangible rewards than for cash rewards (p < 0.01). Finally,
Distinctiveness is higher for tangible rewards than for cash rewards
(1) Less Fungible: “The reward cannot easily be used to obtain
(p < 0.01).
goods or services.”
(2) More Fungible: “The reward can easily be used to obtain
8 goods or services.”
In untabulated pairwise t-tests, participants do not assess tangible rewards as
being more likely to be hedonic in nature when participants provide their assess-
ments for cash rewards first (Meancash ¼ 5.30, Meantangible ¼ 5.23, t ¼ 0.31, Hedonic Nature:
p ¼ 0.76). Notably, our path analysis results regarding this attribute are robust to
the order in which participants provide their assessments. The difference in sta- (1) Utilitarian: “The reward can only be used to obtain goods and
tistical significance between tests likely reflects the noisiness of the underlying data
due to both individual differences (repeated measure) and associations between
services that are necessary and practical.”
measured variables; path analysis is more effective in controlling for these sources (2) Hedonic: “The reward can only be used to obtain goods and
of noise. services that are fun and exciting.”
6
Table 1
Study 1 results.
Panel A: Mean (Standard Deviations)
Order 1 (N ¼ 77) Order 2 (N ¼ 78) Overall (N ¼ 155)
Cash Tangible Cash Tangible Cash Tangible
Fungibility 2.32 (1.01) 0.59 (1.71) 2.20 (1.21) 1.25 (1.29) 2.25 (1.12) 0.92 (1.55)
Hedonic Nature 1.30 (1.60) 1.23 (1.39) 0.60 (1.45) 1.37 (1.35) 0.91 (1.45) 1.34 (1.47)
Novelty 0.26 (1.91) 1.39 (1.32) 0.32 (2.12) 1.34 (1.34) 0.02 (2.03) 1.37 (1.32)
Distinctiveness 1.12 (1.49) 1.94 (1.13) 0.46 (1.74) 1.51 (1.63) 0.79 (1.65) 1.72 (1.41)
Panel B: Path Analysis
Unstandardized Standard Errors z-stat p-value

Estimates
Reward Type / Fungibility 1.33 0.15 9.00 <0.01

Reward Type / Hedonic Nature 0.42 0.16 2.62 <0.01
Reward Type / Novelty 1.40 0.17 8.36 <0.01
Fungibility / Distinctiveness 0.13 0.06 2.08 0.02
Hedonic Nature / Distinctiveness 0.26 0.07 3.88 <0.01
Novelty / Distinctiveness 0.23 0.06 3.77 <0.01
Note: Fungibility, Hedonic Nature, and Novelty are participants' ratings of the likelihood that cash and tangible rewards have each attribute; participants provide their ratings
using a 7-point scale with endpoints of 3 (Very Unlikely) and þ3 (Very Likely). Distinctiveness is participants' ratings of the likelihood that cash and tangible rewards feel
distinct from salary and not simply “more salary.” Participants provide their ratings using a 7-point scale with endpoints of 3 (Very Unlikely) and þ3 (Very Likely). Order 1
asks about Cash then Tangible, whereas Order 2 asks about Tangible then Cash. In the path analysis, Reward Type is equal to 0 for cash rewards and 1 for tangible rewards.
Standard errors are bootstrapped using 10,000 replications (Hayes, 2018). We cluster standard errors by participant to address the potential for correlated error terms due to
multiple observations from the same participant. All reported p-values are one-tailed.
Table 2
Study 2 results.
Panel A: Fungibility Mean (Standard Deviation)
Low [N ¼ 74] High [N ¼ 72] t-stat p-value
Fungibility 0.14 (2.19) 2.02 (1.07) 6.60 0.01
Panel B: Hedonic Nature Mean (Standard Deviation)

Utilitarian [N ¼ 74] Hedonic [N ¼ 74] t-stat p-value
Hedonic Nature 1.16 (1.69) 1.66 (1.33) 1.99 0.02
Panel C: Novelty Mean (Standard Deviation)

Less [N ¼ 71] More [N ¼ 76] t-stat p-value
Novelty 0.99 (1.74) 1.58 (1.29) 2.36 0.01
Note: Fungibility, Hedonic Nature, and Novelty are participants' ratings of how motivating they would find a reward with the given attribute. Participants provide their ratings
using a 7-point scale with endpoints of 3 (Not Motivating At All) and þ3 (Highly Motivating). We vary the level of each attribute, and participants provide their rating for one
level of one attribute. All reported p-values are one-tailed except for Fungibility, because of the countervailing motivational effects of Fungibility.
Novelty: tailed p ¼ 0.01), suggesting rewards that are more fungible are
more motivating.9 This result is notable because the increased
(1) Less Novel: “The reward is ordinary and common.” motivation arising from greater fungibility acts as a countervailing
(2) More Novel: “The reward is novel and unique.” force against the motivating effects of greater distinctiveness. That
is, although cash rewards are more fungible, and thus, assessed to
Then, using a 7-point scale with endpoints of þ1 (not motivating have less reward distinctiveness (see Study 1 results), greater
at all) and þ7 (highly motivating), participants indicate how fungibility increases the flexibility in how the reward can be used,
motivating they would find working towards earning the reward which acts as a strong motivator, consistent with the discussion in
(Effort). Finally, participants provide demographic information. Section II. Second, Effort is higher in the Hedonic condition (more
hedonic) than in the Utilitarian condition (less hedonic) (p ¼ 0.02),
suggesting rewards that are more hedonic in nature are more
4.4. Results
motivating. This result is consistent with those reported by Mitchell
et al. (2021). Finally, Effort is higher in the More Novel condition
We test the motivational effects of each attribute using t-tests.
than in the Less Novel condition (p ¼ 0.01), suggesting rewards that
Table 2 reports descriptive statistics and t-test results comparing
are more novel are more motivating.
the two levels for each of the three reward attributes. We find re-
sults consistent with our expectations. First, Effort is higher in the
More Fungible condition than in the Less Fungible condition (two- 5. Section V. Study 3 method and results
5.1. Overview
9
The reported p-value is two-tailed due to the expected countervailing effects of
greater fungibility. In Study 3, we direct our focus to Link 3 in Fig. 1 and examine
7
whether greater reward distinctiveness motivates greater effort. they achieve the performance goal. Thus, in the Low Distinctiveness
Two aspects of Study 3 are worth noting. First, Study 3 comple- condition, we frame all compensation components using a more
ments the results of Study 2 by using a real-effort task to measure general term (wage), which can easily be used to describe changes
effort. Second, we manipulate reward distinctiveness through in compensation, and describe the compensation in terms of the
discrete framing, which is one of the other commonly cited attri- aggregate payoff (either $25 or $35). In the High Distinctiveness
bute differences between cash and tangible rewards (see Section II). condition, we inform participants they will receive a $25 salary in
This complements the focus in Study 1 and 2 on fungibility, hedonic each round, and in rounds 5e8, can also earn a bonus of $10 cash in
nature, and novelty. each round that they achieved the performance goal.
Two aspects of our manipulation merit discussion. First, varying
5.2. Task either the labels or the numerical presentation (but not both)
would likely not generate the necessary difference in distinctive-
Participants complete a computerized version of Chow's (1983) ness across conditions (Thaler & Johnson, 1990). For example, even
decoding task, which requires participants to translate three-digit if we use the label “wage” to describe compensation in both con-
numbers into letters using a provided translation key (Kelly & ditions, separating the fixed and performance-contingent pay as we
Presslee, 2017). Participants receive a different translation key in do in the High Distinctiveness condition ($25 fixed pay plus $10
each round. The computer screen displays the translation key, performance-contingent pay) would still prompt participants to
participants' performance (number of correct translations), and the view these as two distinct compensation components even in the
time remaining in the round (see Appendix A). Task performance is Low Distinctiveness condition. Second, while we acknowledge
a suitable proxy for effort because the task is designed to be easily participants likely perceive a wage increase differently from earn-
understood by participants without requiring specialized knowl- ing a bonus, the goal of our manipulation is to create differences in
edge (low task complexity) and task performance is sensitive to reward distinctiveness, and framing the performance-contingent
effort (Choi et al., 2021). compensation as a wage increase versus earning a bonus helps
achieve this goal. Relatedly, the framing we use in the two condi-
5.3. Procedures tions builds on proponents’ claims that cash and tangible rewards
differ in terms of discrete framing such that employee view
We conduct the experiment at a large university in the United performance-contingent cash rewards as simply “more salary”
(Flanagan, 2006; Odell, 2005). Therefore, Study 3 allows us to test
States. At the start of the experiment, participants provide their
informed consent and read an initial set of instructions explaining this claim.
the decoding task. Then, participants perform the task in a 2-min
practice round to familiarize themselves with the task. Partici- 5.5. Dependent measures
pants do not receive any compensation for their practice round
performance. After the practice round, participants receive addi- We capture effort using two measures of participants' task
tional instructions about the experiment, and must pass a short performance. First, we consider participants' Post-Performance,
quiz to ensure they understand the instructions. After successfully which is the average number of correct translations in a round
completing the quiz, participants perform the decoding task for over the last four rounds (i.e., post-manipulation). Second, we
eight additional rounds, each lasting 2 min. In all eight rounds, we consider participants' Post-Attainment, which is the number of
assign participants a moderately difficult performance goal of 25 times participants attain the performance goal in the last four
correct translations.10 rounds. In our analysis, we control for participants’ performance
Importantly, there is no performance-contingent compensation in the first four rounds because prior performance is highly pre-
during the first four rounds. This design choice allows us to capture dictive of future performance on real-effort tasks (Bonner &
the effects of performance-contingent compensation in our setting, Sprinkle, 2002; Kelly et al., 2015). Specifically, when analyzing
which we introduce before the fifth round. Specifically, at the start Post-Performance, we control for Pre-Performance, which is the
of the fifth round, participants learn that in the remaining four average number of correct translations in the first four rounds.
rounds they would earn additional compensation in each round When analyzing Post-Attainment, we control for Pre-Attainment,
that they achieved the assigned performance goal of 25 correct which is the number of times a participant attains the perfor-
translations. Following the eighth round, participants complete a mance goal in the first four rounds.11
post-experimental questionnaire and receive their compensation
from one randomly selected round as payment for participating in 5.6. Results
the study.
We recruit 66 participants from an experimental economics
5.4. Reward distinctiveness manipulation lab participant pool to complete Study 3. Thirty-two participants
(48 percent) are male, and their average age is 20.4 years. We do
We manipulate reward distinctiveness by varying how we frame not include age or gender in our analyses, as neither variable
participants’ compensation across conditions. Our manipulation differs by condition, nor are they correlated with Post-Performance
varies both the labels and the numerical presentation of compen- or Post-Attainment (both two-tailed p 0.14). We administer one
sation components, while holding the compensation structure randomly assigned condition in each experimental session, and
constant across conditions. In the Low Distinctiveness condition, each session lasts about 45 min. We do not include session in our
we inform participants they will receive a $25 wage in each round, analyses, as our results are inferentially similar when controlling
and in rounds 5e8, can instead earn a $35 wage in each round that for session.
10 11
The goal is based on the results of a pilot test in which participants perform the While prior performance is highly predictive of future performance, such an
task in a 2-min round and receive piece-rate compensation ($0.10 USD per correct effect is unlikely to cause inferential issues as we find no difference between
translation); the mean and median performance level is 25 correct translations. conditions in practice round performance, Pre-Performance, or Pre-Attainment (all
Participants from the pilot test could not participate in the experiment. two-tailed p 0.70).
8
Table 3
Study 3 results.
Panel A: Mean (Standard Deviation) Results by Condition
Measure Conditions
Low Distinctiveness [n ¼ 33] High Distinctiveness [n ¼ 33]
Distinctiveness 0.58 (2.89) 3.21 (2.04)
Pre-Performance 24.44 (5.30) 24.63 (4.20)

Post-Performance 24.92 (4.96) 26.14 (4.28)
Performance Change 0.47 (2.25) 1.51 (1.91)
Pre-Attainment 1.97 (1.70) 2.12 (1.49)

Post-Attainment 2.06 (1.50) 2.52 (1.25)
Attainment Change 0.09 (1.10) 0.39 (1.17)
Panel B: Analysis of Post-Performance
Model: Post-Performance ¼ b0 þ b1 (Distinctiveness Condition) þ b2 (Pre-Performance) þ εi
Coef. S.E. t-stat p-value1
Intercept 4.55 1.34 3.39 <0.01

Distinctiveness Condition 0.53 0.25 2.14 0.02
Pre-Performance 0.88 0.05 16.65 <0.01
Adjusted R2 ¼ 81.2%
Panel C: Analysis of Post-Attainment

Model: Post-Attainment ¼ b0 þ b1 (Distinctiveness Condition) þ b2 (Pre-Attainment) þ εi
Intercept 1.20 0.23 5.17 <0.01

Distinctiveness Condition 0.18 0.12 1.51 0.07
Pre-Attainment 0.62 0.08 8.23 <0.01
Note: Distinctiveness is a post-experimental questionnaire item capturing participants' agreement with the following statement: “I consider [the bonus of $10 cash/wage
increase] for achieving the performance goal in rounds 5e8 as being separate from my [$25 salary/$25 wage].” Participants respond using an 11-point scale, with endpoints
of 5 (strongly disagree) and þ5 (strongly agree). Pre-Performance is the average number of correct translations in a round over the first four rounds. Pre-Attainment is the
number of times a participant attains the performance goal in the first four rounds. Post-Performance is the average number of correct translations in a round over the last four
rounds. Post-Attainment is the number of times a participant attains the performance goal in the last four rounds. Performance Change is equal to Post-Performance e Pre-
Performance. Attainment Change is equal to Post-Attainment e Pre-Attainment. Distinctiveness Condition is equal to 0 for the Low Distinctiveness condition and 1 for the High
Distinctiveness condition. The reported p-values for Distinctiveness Condition, Pre-Performance, and Pre-Attainment are one-tailed. All other reported p-values are two-tailed.
Analysis of participants' responses to post-experimental 6. Section VI. Study 4 method and results
questionnaire items indicate a successful manipulation of
reward distinctiveness. In the Low Distinctiveness condition, 6.1. Overview
participants rate their agreement with the following statement: “I
consider the wage increase for achieving the performance goal in In Study 4, we integrate the results of the prior three studies and
rounds 5e8 as being separate from my $25 wage.” In the High examine the full set of links shown in Fig. 1. Notably, the design of
Distinctiveness condition, participants rate their agreement with Study 4 allows us to examine whether tangible rewards motivate
the following statement: “I consider the bonus of $10 cash for greater effort in a setting in which all four commonly cited differ-
achieving the performance goal in rounds 5e8 as being separate ences between cash and tangible rewards are present. This is non-
from my salary.” In both conditions, participants respond using an trivial, as the results of Study 2 indicate cash rewards can motivate
11-point scale with endpoints of 5 (strongly disagree) and þ5 greater effort because cash is more fungible, yet we hold fungibility
(strongly agree), and we use participants’ responses to these two constant in Study 3 when examining the effect of reward distinc-
items to create our measure, Distinctiveness. Table 3, Panel A, tiveness on effort.12
presents descriptive statistics for Distinctiveness and the other
measures of interest by condition. In untabulated tests, we find
Distinctiveness is higher in the High Distinctiveness condition 6.2. Task
(t ¼ 4.28, p < 0.01).
Consistent with our expectations, we find greater distinc- Participants perform a computerized version of Gill and
tiveness leads to greater effort. As shown in Table 3, Panels B and Prowse's (2012) slider task for one practice round and twelve
C, Post-Performance is higher in the High Distinctiveness condi-
tion (p ¼ 0.02), and Post-Attainment is also higher in the High
12
Distinctiveness condition (p ¼ 0.07). By and large, we continue to To the extent that greater fungibility generates competing effects, one may
reason that tangible rewards must lead to greater effort compared to cash rewards.
find greater distinctiveness leads to greater effort in untabulated
However, such reasoning requires assumptions about effect sizes such that incre-
tests using alternative measures of distinctiveness and effort. mental effects of differences in hedonic nature, novelty, and discrete framing are
larger than the net effect of differences in fungibility. We are unaware of any theory
or empirical evidence to validate that assumption. Thus, whether tangible rewards
motivate greater effort than do cash rewards in Study 4 is unclear ex ante.
9
production rounds. For this task, the computer screen presents a test the “net” effect of the four reward attributes. The holistic
series of sliders with endpoints of 0 and 100, and each slider has a manipulation ensures we achieve this goal. In addition, we use a
slider box that is initially set at 0. The objective is to use the com- real-effort task to test whether these net effects extend to a more
puter mouse and drag the slider box to the midpoint of the slider generalizable setting.
(50). In each round, participants receive real-time information First, we manipulate whether participants earn a cash reward
regarding their performance (number of correctly positioned slider ($10) or a tangible reward ($10 AMC movie theater gift card) for
boxes) and the time remaining in that round (see Appendix B). Task attaining the performance goal in a round. Second, we manipulate
performance is a suitable proxy for effort because the task is fungibility by using a $10 AMC movie theater gift card to oper-
designed to be easily understood by participants without requiring ationalize the tangible reward; the gift card can only be spent at an
specialized knowledge (low task complexity) and task performance AMC movie theater and is limited to purchasing movie tickets and
is sensitive to effort (Choi et al., 2021). concessions. These limitations do not apply to the cash reward.
Third, we manipulate the hedonic nature of the reward (Cash
Reward condition: utilitarian; Tangible Reward condition: hedon-
6.3. Procedures
ic). Recall we ask all participants to imagine they plan to spend their
$20 fixed pay in each round on utilitarian items. We ask partici-
We conduct the experiment at a large university in the United
pants in the Cash Reward condition to imagine they also plan to
States that is different from the university where we conducted
spend the reward on “necessary and helpful things, like paying bills
Study 3. We recruit individuals from an interdisciplinary behavioral
and buying groceries.” In contrast, we ask participants in the
research lab participant pool to participate in one of seven sessions.
Tangible Reward condition to imagine they plan to spend the
Participants sit at individual private computer terminals upon
reward “to buy movie tickets and buy concession items (i.e., snacks,
arrival at the lab. After providing their informed consent, partici-
candy, and drinks).” This difference in planned consumption re-
pants receive initial instructions about the slider task. Then, par-
flects how employees tend to spend cash rewards on utilitarian
ticipants proceed to the practice round, which lasts 2 min.
items (“needs”), while tangible rewards are hedonic in nature
Participants do not receive any compensation for the practice
(“wants”).
round, and practice round performance does not differ between
Fourth, we manipulate novelty using participants' expectations
conditions (two-tailed p ¼ 0.16).
regarding the opportunity to earn the reward. Prior to round 1,
After the practice round, participants receive additional in-
participants in the Cash Reward condition learn they can earn the
structions about the experiment, and must pass a short quiz to
reward for attaining the performance goal in all twelve production
ensure they understand the instructions. Specifically, participants
rounds. Prior to round 9, participants in the Tangible Reward con-
learn they will perform the slider task for twelve production
dition learn they can earn the reward in rounds 9e12; these par-
rounds, each lasting 2 min. Further, participants have a difficult, but
ticipants do not have an opportunity to earn the reward in the
attainable, performance goal of correctly positioning 39 slider
previous eight rounds. Since we test the hypothesis using partici-
boxes in each round.13
pants’ performance and goal attainment in rounds 9e12, this dif-
In all conditions, participants receive fixed pay of $20 in each of
ference in the (un)expected opportunity to earn the reward reflects
the twelve production rounds, and this compensation represents
how employees tend to develop an expectation for the opportunity
their salary in each round. To mimic how employees typically spend
to earn cash rewards, whereas the opportunity to earn tangible
their salary on more serious expenses (Frankel, 2018), we ask par-
rewards feels more novel.14
ticipants to imagine they plan to spend the $20 on utilitarian items
Finally, as in Study 3, we manipulate discrete framing of the
that are “necessary and helpful things, like paying bills and buying
reward by framing it jointly with fixed pay (Cash Reward condition)
groceries.” Participants also can earn additional compensation for
or separately from fixed pay (Tangible Reward condition). In the
attaining their assigned goal, and the additional compensation is
Cash Reward condition, we frame the reward jointly with fixed pay
either a cash or a tangible reward, which varied by condition. At the
by informing participants they will earn “$30” for goal attainment.
end of each round, participants receive feedback about their per-
In the Tangible Reward condition, we frame the reward separately
formance and the compensation they earned in the round.
from fixed pay by informing participants they will earn “$20 and an
Following the last production round, participants complete a post-
additional $10 AMC gift card” for goal attainment. This difference in
experimental questionnaire and receive their earnings from one
framing reflects how cash rewards are often paid together with an
randomly selected round.
employee's salary in a lump-sum payment, but tangible rewards
are not.
6.4. Reward type and attribute manipulation
We manipulate reward type and the four reward attribute dif- 6.5. Dependent measures
ferences between sessions. We use a holistic manipulation that
varies reward type and ensures the cash and tangible rewards differ We consider two measures of task performance. First, we
in all four reward attributes (see Appendix C), which is important consider Post-Performance, which is the average number of
considering the prior discussion about how participants may view correctly positioned sliders in a round over the last four rounds.
all earnings from a laboratory study as windfall gains (Arkes et al., Second, we consider Post-Attainment, which is the number of times
1994; Milkman & Beshears, 2009). As noted earlier, the goal of this a participant achieves the performance goal in the last four rounds.
holistic manipulation is to integrate the results of Studies 1e3 and Similar to our approach in Study 3, we control for participants’
performance in the four rounds prior to introducing tangible
13
In a pilot study in which participants perform the slider task for eight rounds
14
and earn $0.05 for each correctly positioned slider box, approximately 30 percent of We use a surprise to operationalize novelty. As Barto et al. (2013, p. 2) explain,
participants correctly position 39 slider boxes in at least one round. We recruit pilot “one cannot say with certainty whether experimental results [in general] provide
study participants from the same participant pool as those participating in the evidence for novelty or for surprise.” That is, the two constructs produce similar
experiment, but participants from the pilot study did not participate in the outward reactions. The authors also note “surprise often e perhaps always e ac-
experiment. companies novelty” (9).
10
Table 4
Study 4 results.
Panel A: Mean (Standard Deviation) Results by Condition
Measure Reward Type
Cash [N ¼ 42] Tangible [N ¼ 40]
Distinctiveness 3.64 (1.91) 5.05 (1.60)
Pre-Performance 35.87 (7.07) 35.20 (7.76)

Post-Performance 35.65 (9.04) 37.98 (7.19)
Performance Change 0.22 (5.28) 2.77 (3.41)
Pre-Attainment 1.73 (1.82) 1.80 (1.60)

Post-Attainment 1.95 (1.77) 2.48 (1.66)
Attainment Change 0.21 (0.68) 0.68 (1.12)
Panel B: Analysis of Post-Performance
Model: Post-Performance ¼ b0 þ b1(Reward Type) þ b2 (Pre-Performance) þ εi
Intercept 0.61 2.91 0.21 0.84

Reward Type 2.95 0.99 2.99 <0.01
Pre-Performance 0.93 0.07 13.78 <0.01
Panel C: Analysis of Post-Attainment

Model: Post-Attainment ¼ b0 þ b1(Reward Type) þ b2 (Pre-Attainment) þ εi
Coef. S.E. t-stat p-value
Intercept 0.01 0.32 0.01 0.99

Reward Type 0.47 0.20 2.38 0.01
Pre-Attainment 0.86 0.06 14.90 <0.01
Note: Distinctiveness is participants' responses to a post-experimental questionnaire item in which participants see seven pairs of circles, with one circle in each pair rep-
resenting the participant's $20 fixed pay and the other circle representing the reward. The seven pairs of circles vary in the degree of overlap between the circles, with greater
overlap indicating greater perceived similarity between the two forms of compensation. Participants choose one pair of circles that best captures how they perceive the
similarity between the two forms of compensation. We convert participants' choices using a numerical scale with endpoints of 1 and 7 (higher values reflect greater perceived
distinctiveness). Pre-Performance is the average number of correct translations in rounds 5e8. Pre-Attainment is the number of times a participant attains the performance goal
in rounds 5e8. Post-Performance is the average number of correct translations in rounds 9e12. Post-Attainment is the number of times a participant attains the performance
goal in rounds 9e12. Performance Change is equal to Post-Performance e Pre-Performance. Attainment Change is equal to Post-Attainment e Pre-Attainment. Reward Type is equal
to 0 for the Cash Reward condition and 1 for the Tangible Reward condition. The reported p-values for Reward Type, Pre-Performance, and Pre-Attainment are one-tailed. All
other reported p-values are two-tailed.
rewards in round 9 because prior performance is highly predictive Participants' responses to a post-experimental questionnaire
of future performance on real-effort tasks (Bonner & Sprinkle, item indicate a successful manipulation. If our manipulation is
2002; Kelly et al., 2015). Specifically, when analyzing Post-Perfor- successful, then we should observe differences in reward distinc-
mance, we control for Pre-Performance, which is the average num- tiveness between conditions. We capture participants' assessments
ber of correctly positioned sliders in rounds 5e8. When analyzing of reward distinctiveness relative to the $20 fixed pay they receive
Post-Attainment, we control for Pre-Attainment, which is the num- in each round using a validated approach developed in psychology
ber of times a participant attains the performance goal in rounds research (Aron et al., 1992) and subsequently used in extant ac-
5e8.15 counting and marketing research (e.g., Bauer, 2015; Chernev et al.,
2011). We present participants with seven pairs of circles, with one
6.6. Results circle in each pair representing the $20 fixed pay and the other
circle representing the reward (see Appendix D). The seven pairs of
Eighty-two participants complete Study 4. Forty-one (50 circles vary in the degree of overlap between the circles, which
percent) participants are female, and the average age is 21.4 years. reflects the perceived similarity between the $20 fixed pay and the
We do not consider age or gender in our analyses, as our results are reward (greater degree of overlap indicates greater perceived
inferentially similar when we control for these variables.16 We similarity). We ask participants to choose one pair of circles that
administer one randomly assigned condition in each experimental best captures how they perceive the degree of similarity between
session, and each session lasts 45 min. We do not include session in the two forms of compensation. To create our measure, Distinc-
our analyses; we find similar results after controlling for session. tiveness, we convert participants’ choices using a numerical scale
with endpoints of 1 and 7 (higher values indicate greater distinc-
tiveness). Table 4, Panel A, presents descriptive statistics by con-
15
Neither Pre-Performance nor Pre-Attainment differ between conditions (both dition for Distinctiveness and our measures of interest. Participants
two-tailed p-values 0.68). view the reward as being more similar (i.e., Distinctiveness is
16
Gender does not differ by condition (two-tailed p ¼ 0.52), while age is higher in
higher) in the Cash Reward condition than in the Tangible Reward
the Cash Reward condition (two-tailed p ¼ 0.07). Age is not correlated with either
Post-Performance or Post-Attainment (two-tailed p ¼ 0.38), while Post-Performance
condition (t (80) ¼ 3.61, p < 0.01, untabulated).
and Post-Attainment are greater for men than for women (two-tailed p 0.05). Consistent with the hypothesis, we find a tangible reward leads
11
to greater performance than a cash reward.17 We test this hy- not) to affect effort. Future research could examine these in-
pothesis using similar analyses to those used in Study 3; we teractions. Fourth, our results suggest reward attributes mediate
compare Post-Performance and Post-Attainment across conditions the effect of reward type on effort. In Study 3, for example, we find
while controlling for Pre-Performance and Pre-Attainment, respec- cash rewards can be framed as more or less discrete, which affects
tively. We present the results in Table 4, Panel B (Post-Performance) effort. However, whether and how firms can frame cash rewards to
and Panel C (Post-Attainment). Both Post-Performance (p < 0.01) and mimic other common attributes of tangible rewards (e.g., hedonic
Post-Attainment (p ¼ 0.01) are higher in the Tangible Reward con- nature and novelty) while retaining the benefit of fungibility re-
dition. Thus, when differences in all four reward attributes are mains an empirical question. For example, firms could send mes-
present, we find tangible rewards are more motivating than cash sages to their employees encouraging them to spend their cash
rewards, consistent with proponents’ claims.18 As noted earlier, this rewards on hedonic items/experiences (e.g., “We encourage you to
is notable given the countervailing motivational effects of cash purchase something fun and exciting”) or by encouraging em-
rewards due to their greater fungibility.19 ployees to share about the hedonic item/experience they pur-
chased. This may help explain why firms offer holiday bonuses, as
employee spending around holidays typically involve hedonic
7. Conclusion
items/experiences. Firms could also increase the novelty of a cash
reward program by changing the program interval (e.g., 1 month vs.
Many firms offer tangible rewards in lieu of cash rewards to
3 months) or by changing the program name (e.g., the 2021 reward
motivate their employees. Using four studies, we examine four
program). Finally, future research could examine other claims
attribute differences between cash and tangible rewards commonly
regarding the benefits of using tangible rewards. For example,
cited by proponents of tangible rewards: (1) fungibility, (2) hedonic
consultants claim discontinuing a rewards program is less damaging
nature, (3) novelty, and (4) discrete framing. We find three main
for tangible rewards than for cash rewards because employees
results. First, consistent with proponents’ claims, cash and tangible
develop less of an expectation for the tangible reward (Flanagan,
rewards do indeed differ in these four attributes (Study 1). Second,
2006).
these attribute differences lead people to assess greater reward
distinctiveness for tangible rewards, which in turn, strengthens the
motivational effects of tangible rewards; this applies to the attri- Acknowledgments
bute differences both individually (Study 2 and 3) and collectively
(Study 4). Finally, we find the greater fungibility of cash rewards can We thank Ranjani Krishnan (Editor), two anonymous Account-
counteract the motivational effects of tangible rewards, even ing, Organizations and Society reviewers, Jacob Birnberg, Alex
though greater fungibility leads people to assess cash rewards to Brüggen, Nicole Cade, Jim Cannon, William Dilla, Jeremy Douthit,
have less reward distinctiveness. This suggests a multitude of Anne Farrell, Laura Feustel, Jeff Hales, Kip Holderness, Khim Kelly,
attribute differences between cash and tangible rewards may be Jeremy Lill, Cardin Masselink, Greg McPhee, Timothy Mitchell,
necessary for the motivational benefits of tangible rewards to Drew Newman, Brad Pomeroy, Steve Salterio, Ashley Sauciuc, Ivo
materialize. Overall, by focusing on reward attribute differences Tafkov, Todd Thornock, Nate Waddoups, Alan Webb, Sara Wick,
between cash and tangible rewards, our paper complements prior Michael Williamson, conference participants at the 2015 ABO
research by going beyond whether tangible rewards motivate Conference, 2016 MAS Conference, 2016 Global Management Ac-
greater effect than cash rewards and examining when and why counting Research Symposium, 2016 USC Mini-Conference, 2019
tangible rewards can motivate greater effort (attribute differences). Emory Accounting Conference, and 2019 Tilburg Mini-Conference,
Future research can build on our paper in several ways. First, and workshop participants at the College of William and Mary,
while the four differences we examine apply to both material and Iowa State University, Kent State University, Miami University,
experiential tangible rewards, future research could examine other Nanyang Technical University, Ohio State University, University of
differences, including those that only apply to either material or Nebraska-Lincoln, University of South Carolina, University of Wa-
experiential tangible rewards (e.g., tangible rewards with trophy terloo, and West Virginia University for constructive feedback. We
value). Second, future research could examine whether increasing thank Conor Brown, Jeff Clark, and Brian Knox for research assis-
the fungibility of tangible rewards (e.g., offering an Amazon gift tance, Sarah Chan and Garren Wood for programming assistance,
card or allowing employees to choose from a menu of tangible and Elise Boyas, the Pittsburgh Experimental Economics Lab, and
reward options) could serve to neutralize the counteracting moti- the University of Wisconsin-Madison BRITE Lab for access to par-
vational effects of cash rewards. Third, while the holistic manipu- ticipants and lab space. Support for this research was provided by
lation we use in Study 4 limits our ability to tease apart how the the Office of the Vice Chancellor for Research and Graduate Edu-
four reward attributes interact to affect effort, it also highlights the cation at the University of Wisconsin-Madison with funding from
need to better understand how reward attributes work together (or the Wisconsin Alumni Research Foundation. We also acknowledge
financial support from the Ben L. Fryrear Faculty Fellowship, the
Central Development Research Fund, and the Dean's Small
17
Given the goal-based compensation scheme, we expect the effect of reward Research Grant Program, all at the University of Pittsburgh, and
type on performance will operate through goal commitment. To measure partici- from the Centre for Sustainability Reporting and Performance
pants' goal commitment, we ask the following question immediately before round Management at the University of Waterloo.
9: “How committed are you to correctly positioning at least 39 sliders in a 2-min
round?” Participants respond using a 7-point scale with endpoints of 1 (Not
Committed) and 7 (Very Committed). Consistent with our expectations, we find Appendix A
goal commitment is higher in the Tangible Reward condition (Mean ¼ 6.15, Stan-
dard Deviation ¼ 1.29) than in the Cash Reward condition (Mean ¼ 5.67, Standard
Decode Task Screenshot
Deviation ¼ 1.49) (t ¼ 1.56, p ¼ 0.06).
18
When we define Pre-Attainment and Pre-Performance as performance/goal
attainment in rounds 1e8 and not rounds 5e8, we continue to find directional
support for both Post-Performance and Post-Attainment (p ¼ 0.01).
19
A confounding wealth effect is unlikely for two reasons. First, we pay partici-
pants their compensation from one randomly selected round. Second, we assign
participants a difficult goal whereby only 30% of them attain the goal.
12
Appendix B
Note: We adapt Chow's (1983) decode task for Study 3. Partic-
ipants translate numbers into letters using a translation key, which Slider Task Screenshot
is provided at the bottom of the screen. Participants receive a new
translation key at the start of each round. Each correct translation
increases performance by one. During the round, participants
receive real-time information regarding their performance (num-
ber of correct translations) and the time remaining in the round.
13
Tangible Reward Condition

Note: We adapt Gill and Prowse's (2012) slider task for Study 4. Below are two circles, one representing the $20 and the other
Participants see a series of sliders with endpoints of 0 and 100, and representing the additional $10 AMC gift card you would earn for
each slider has a slider box initially set at 0. The objective is to use achieving the performance goal. The greater the overlap between
the computer mouse and drag the slider box to the midpoint of the the two circles, the more similar those items are to one another.
slider (50). During the round, participants receive real-time infor- Which picture below best describes how you think about the two
mation regarding their performance (number of correctly posi- items?
tioned slider boxes) and the time remaining in the round.
Appendix C
Reward Type Manipulation in Study 4
Difference Between Cash and Cash Reward Condition ($10 Cash for Goal Attainment) Tangible Reward Condition ($10 AMC Gift Card for Goal
Tangible Rewards Attainment)
Fungibility (More vs. Less) More: Cash Less: Gift card is redeemable only at AMC movie theaters.
Hedonic Nature (Utilitarian vs. Utilitarian: Reward spent on “necessary and helpful things, like Hedonic: Rewards spent on “movie tickets and to buy concession
Hedonic Consumption) paying bills and buying groceries.” items (i.e., snacks, candy, and drinks).”
Novelty (Less vs. More Novel) Less: Immediately before round 1, participants learn about More: Immediately before round 9, participants learn about
opportunity to earn the reward in rounds 1e12. opportunity to earn the reward in rounds 9e12.
Discrete Framing (Joint vs. Joint: Instead of $20, participants earn “$30” for goal attainment Discrete: Instead of $20, participants earn “$20 and an additional
Discrete) $10 AMC gift card” for goal attainment.
Note: In Study 4, we use a holistic manipulation emphasizing all four differences discussed in Section II: (1) fungibility (more versus less), (2) hedonic nature (utilitarian versus
hedonic consumption), (3) novelty (less versus more novel), and (4) discrete framing (joint versus discrete).
Appendix D
Post-Experimental Questionnaire Item Capturing Distinctiveness
Cash Reward Condition

Below are two circles, one representing the $20 and the other
representing the increase to $30 you would earn for achieving the
performance goal. The greater the overlap between the two circles,
the more similar those items are to one another. Which picture
below best describes how you think about the two items?
14
Note: We create our measure, Distinctiveness, using participants' real effort competition. The American Economic Review, 102(1), 469e503.
Hayes, J. B. (2018). Introduction to mediation, moderation, and conditional process
responses to this post-experimental questionnaire item. We pre-
analysis: A regression-based approach. New York, NY: The Guilford Press.
sent participants with seven pairs of circles, with one circle in each Henderson, P., & Peterson, R. (1992). Mental accounting and categorization. Orga-
pair representing the participant's $20 fixed pay (salary), and the nizational Behavior And Human Decision Processes, 51, 92e117.
other circle representing the $10 reward. The seven pairs of circles Heninger, W. G., Smith, S. D., & Wood, D. A. (2019). Reward type and performance:
An examination of organizational wellness programs. Management Accounting
vary in the degree of overlap between the circles, with a greater Research, 44, 1e11.
degree of overlap indicating greater perceived similarity. Partici- Incentive Federation. (2007). Federation study 2007: A study of the incentive
pants choose one pair of circles that best captures how they merchandise and travel marketplace. Westfield, NJ: GFK.
Incentive Federation. (2013). Incentive market study: October 2013. Falls Church, VA:
perceive the degree of similarity between the two forms of Aspect Market Intelligence.
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scale with endpoints of 1 and 7 (higher values indicate greater field, NJ: GFK.
Jeffrey, S. A. (2009). Justifiability and the motivational power of tangible noncash
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Accounting, Organizations and Society 104 (2023) 101389

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Accounting, Organizations and Society

Fig. 1. Conceptual Model

Panel A: Mean (Standard Deviations)

Order 1 (N ¼ 77) Order 2 (N ¼ 78) Overall (N ¼ 155)

Cash Tangible Cash Tangible Cash Tangible

Panel B: Path Analysis

Unstandardized Standard Errors z-stat p-value

Reward Type / Fungibility 1.33 0.15 9.00 <0.01

Panel A: Fungibility Mean (Standard Deviation)

Low [N ¼ 74] High [N ¼ 72] t-stat p-value

Fungibility 0.14 (2.19) 2.02 (1.07) 6.60 0.01

Panel B: Hedonic Nature Mean (Standard Deviation)

Hedonic Nature 1.16 (1.69) 1.66 (1.33) 1.99 0.02

Panel C: Novelty Mean (Standard Deviation)

Novelty 0.99 (1.74) 1.58 (1.29) 2.36 0.01

Panel A: Mean (Standard Deviation) Results by Condition

Low Distinctiveness [n ¼ 33] High Distinctiveness [n ¼ 33]

Distinctiveness 0.58 (2.89) 3.21 (2.04)

Pre-Performance 24.44 (5.30) 24.63 (4.20)

Performance Change 0.47 (2.25) 1.51 (1.91)

Pre-Attainment 1.97 (1.70) 2.12 (1.49)

Attainment Change 0.09 (1.10) 0.39 (1.17)

Panel B: Analysis of Post-Performance

Model: Post-Performance ¼ b0 þ b1 (Distinctiveness Condition) þ b2 (Pre-Performance) þ εi

Coef. S.E. t-stat p-value1

Intercept 4.55 1.34 3.39 <0.01

Panel C: Analysis of Post-Attainment

Coef. S.E. t-stat p-value1

Intercept 1.20 0.23 5.17 <0.01

Panel A: Mean (Standard Deviation) Results by Condition

Measure Reward Type

Cash [N ¼ 42] Tangible [N ¼ 40]

Distinctiveness 3.64 (1.91) 5.05 (1.60)

Pre-Performance 35.87 (7.07) 35.20 (7.76)

Performance Change 0.22 (5.28) 2.77 (3.41)

Pre-Attainment 1.73 (1.82) 1.80 (1.60)

Attainment Change 0.21 (0.68) 0.68 (1.12)

Panel B: Analysis of Post-Performance

Model: Post-Performance ¼ b0 þ b1(Reward Type) þ b2 (Pre-Performance) þ εi

Coef. S.E. t-stat p-value1

Intercept 0.61 2.91 0.21 0.84

Panel C: Analysis of Post-Attainment

Coef. S.E. t-stat p-value

Intercept 0.01 0.32 0.01 0.99

Tangible Reward Condition

Reward Type Manipulation in Study 4

Post-Experimental Questionnaire Item Capturing Distinctiveness

Cash Reward Condition

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