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Perk alert: Companies try prizes instead of cash bonuses

Smash your sales target? Beat your deadline? Ship a bug-free product? Good job! Here's a DVD player. Top workers are increasingly winning gadgets instead of cash bonuses and stock options.

4 min read
Smash your sales target? Beat your deadline? Ship a bug-free product? Good job! Here's a DVD player.

As technology companies experiment with new strategies to recruit and retain workers, many are rewarding top workers with points, prizes and gadgets instead of the traditional tech carrots: cash bonuses and stock options.

The trend is on the rise in tech hubs such as Silicon Valley and Boston, where worthless stock option packages and high turnover have created a relatively disloyal work force and hot competition among recruiters.

Different employers feature different perk programs, but here's how they generally work: An employee who would normally receive a $500 spot bonus for, say, a flawless presentation to the board would instead receive 500 points, confirmed via email from an appreciative boss. The worker could then redeem the points for a small gift purchased online. Or he could squirrel away the points to splurge on something larger, anticipating more points down the road.

Many companies give small point awards to mark the anniversary of an employee's start date, birthday or promotion.

According to human resource managers and compensation supervisors, DVD players were among the most popular gadgets that point mongers selected last year. Some companies' points programs allow them to exchange points one for one with airline frequent flier mileage, enabling point hoarders to win tickets with as few as 20,000 points.

Nortel Networks is one of dozens of tech companies leading the alternative compensation charge. Already, 25,000 workers at the Brampton, Ont.-based networking company have received points, and about 40 percent of them have redeemed them for prizes--ranging from tool kits to a bathroom remodeling job.

Perk on the fast track?
According to executives at companies that are powering the point programs, the idea is destined to become a common compensation practice within the next several years.

"How to recognize and reward employees has always been a real hot topic. The tech industry is still looking for what the 401(k) of employee recognition is going to be," said Bill Rusitzky, vice president of enterprise solutions for San Francisco-based Netcentives, which powers Nortel's program and many others. "We feel we have a good handle on that through the programs we've done...Points are a compelling tool that gets companies a competitive advantage."

Other nontraditional rewards programs aren't based on points but work similarly via online gift certificates. A boss will reward a good worker with a $100 gift certificate to a fancy restaurant or free ski tickets at a local resort instead of cash.

In this emerging cottage industry specializing in alternative rewards, Santa Clara, Calif.-based BeyondWork recently launched a product called GiftPass. The program, used by Charles Schwab and Wells Fargo workers, uses patent-pending technology to create an online mall tailored to a specific company's work force. Employees can redeem certificates or even donate to charities in a virtual store.

Fueling their popularity with technology workers, virtually all of the points-based perk programs operate entirely online. Although they may extend a congratulatory handshake in person, bosses officially notify workers that they have won points via email. Employees can redeem points for prizes offered in online malls. Workers keep track of their points in online logbooks.

Israel Niv, CEO of BeyondWork, said such a system aligns a company more closely with the reward--and ultimately makes employees more thankful than they would be about cash rewards. Employees who cash in points for a DVD, for example, are much more likely to remember the company fondly whenever they use the machine or see it in their living room, Niv said.

"If I give you $1,000, what would you do with it?" Niv asked. "After taxes, you'd probably spend it on your Visa bill or something, and you'd never remember that your company gave it to you as a bonus for doing a good job. With this (system), the employee knows and remembers that the company is responsible for the reward."

The costs of compensation
Although accumulating points may sound like whimsical fodder for a TV game show, human resource experts are seriously scrutinizing whether the pros outweigh the significant cons of the practice.

In many cases, the company pays the sales tax on the gifts, so a $900 airline ticket to Hawaii could actually cost the employer as much as 39.6 percent more than that--far more than a simple spot bonus of $900 cash. And companies that participate in such programs typically have to pay a monthly fee to the companies that power the Web site and maintain the company stores associated with the programs.

Many pundits debate whether points and other alternative perks work at all. A recent article in Fortune magazine about Nortel poked fun at the point strategy, calling it "Merv Griffin meets management."

Like many skeptics, compensation expert Deborah Thobe maligned the practice as "trash and trinket compensation."

"Maybe they're popular with younger employees, but you can't buy good management with trinkets," said Thobe, president of Carrollton, Texas-based Thobe Group, a human resources management consulting firm specializing in compensation for the telecommunications and Internet industries. "There are some companies experimenting with alternatives, but in general we're seeing a stronger emphasis on the base pay package."

Dee DiPietro, CEO and founder of Saratoga, Calif.-based Advanced-HR, took a more moderate stance. She said the programs could have fans in certain social and economic echelons, though they are unlikely to become as widespread as 401(k) and other noncash compensation programs.

"Sometimes people in a fairly affluent area don't care about cash as much as they care about someone going to the trouble of making reservations for them or purchasing airline tickets for them or just giving them a gift certificate they can quickly redeem online," DiPietro said. "They're trying to hit the cultural and lifestyle things."