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The Psychology of Incentive Travel – and How It Can Work for Your Business

If you ask your employees what would motivate and reward them for a job well done, most are going to tell you it’s a cash bonus. But research is proving them wrong. While employees appreciate extra money, experiential incentives like travel have a greater and longer-lasting impact on performance.

Researchers for the Incentive Research Foundation found cash rewards are appreciated in the moment but likely go toward paying off a credit card or a home repair project that employees have been putting off. The appreciation is real, but the impact isn’t all that memorable.

Why cash bonuses may not pay off

The reason cash rewards don’t have a lasting impact is due to something called “Mental Accounting.” When a company offers a bonus as an incentive, employees subconsciously classify the money as an addition to their salary. Once the money is blended in their minds, it almost always goes toward paying bills and everyday expenses. The positive feelings about their accomplishment, job, and employer are temporary, with few long-term memories to re-spark the positive correlation.

Another psychological aspect that often comes with cash incentives is a sense of entitlement. Studies show that due to the mental accounting that lumps the bonus in with salary, employees start to factor the bonus into their financial plans. While it still incents their performance, the impact lessens over time. To get the same reaction in subsequent years requires increasing the monetary reward. Even worse, if cash bonuses are discontinued, research shows performance drops more significantly than it does when non-cash rewards are stopped.

All this does not mean that cash incentives don’t work. They drive improvements in productivity and performance. However, the research points out that experiential rewards can have more of an impact. And, with increased impact comes increased return on a company’s incentive investment.

The experiential advantage

Crafting an incentive program around travel experiences requires a little groundwork. For example, an incentive travel program must be carefully designed to appeal to each employee group. It needs to be aspirational – or something that employees want but wouldn’t necessarily pay for on their own.

With the right trip selected, psychology kicks in. The first advantage is called the “Ikea Effect.” Studies show that people tend to believe things that appeal to them are worth more than their actual monetary value. This is especially true when it’s a reward they’re working hard to achieve. (It’s called the Ikea Effect because people value their Ikea purchases as being worth more because of the investment they make in putting them together!)

Another advantage that comes with non-cash incentives is “Social Signaling.” When employees earn an incentive travel reward, other people notice, and they’re more likely to ask them about their trip than they would about how they spent a cash bonus. As employees respond and talk about their travel experiences, the value is compounded for the employer.

To better understand the psychological aspects of incentives on performance, researchers have conducted many experiments. One tested the impact of cash rewards versus experiential rewards on the performance of salespeople. The study showed the salespeople incentivized by the experiential reward thought about it more often than those working toward the cash bonus. This increased sense of desire for the incentive translates into greater perseverance, sustained effort, and performance. For companies, that means more return for an equal investment when they spend their incentive budget on rewards like travel rather than cash bonuses.

Finally, the biggest advantage of experiential incentives is the “Reciprocity Effect.” When an employer offers an appealing travel incentive, employees perceive a greater value than cash because of the care and careful thought that went into designing a reward they would enjoy. As a result, they want to reciprocate through enhanced performance.

Research shows that the feeling of reciprocity extends well beyond the trip. Those who earn a travel reward are likely to recall it positively well into the future, which correlates with stronger engagement and company loyalty over the long-term.

There’s one potential psychological drawback to experiential rewards. It’s known as the “Champagne Effect.” Researchers warn that unless they’re continuously refreshed, travel rewards can lose their novelty over time. Like champagne, the first glass is celebratory and meaningful, but subsequent glasses can get old. Experts recommend regularly changing up destinations and trip perks to keep the unique appeal of travel incentives in place year after year.

At Cruise Dreams, we specialize in custom-designed incentive travel that inspires your employees and generates results for your business. We’re ready to help you create an incentive Trip of a Lifetime. Call us at (877) 999-4533 or email us at today.

Waves to you and smooth sailings ahead!

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