How to get a bigger bonus: Don’t ask for it in cash

June 21, 2013
June 21, 2013

In the popular ABC television drama “Nashville,” a young country music artist is discovered by a famous producer and offered a signing bonus. But the bonus is not cash—instead, it is a gorgeously restored, classic convertible sports car. The musician happily accepts this gleaming prize over the protestations of his manager, who reminds him that the car is worth much less than standard signing bonuses. But the advice falls on deaf ears. The young musician jumps behind the wheel of the convertible and speeds blissfully away, his hair blowing in the wind.

Why would someone be satisfied—happy even—with an obviously inferior reward? According to Neal J. Roese, a professor of marketing at the Kellogg School of Management, and Jingjing Ma, a doctoral student at Kellogg, it all comes down to how “countable” the reward is. The two argue that presenting rewards or bonuses in less quantifiable terms decreases the likelihood that recipients will compare rewards, which in turn increases their satisfaction.

Accentuate the positive

Ma first noted the “countability effect” as a college student researching rural minority ethnic groups in her native China. “I noticed people in these communities are not likely to compare what they get to people who receive more than them,” Ma says. “They focus on what they have—even if it’s less than what others have. I belong to a minority group in China myself, and noticing this behavior pattern motivated me to study how unhappy feelings might be mitigated in unfair reward distributions.”

Ma teamed up with Roese, whose own research has focused on “the emotion of regret and how people make spontaneous comparisons,” he says. “Does it matter how you present rewards? People are usually upset if they’re on the short end of the stick. But we found that when things are less easily quantified into nice whole numbers, people are much less sensitive to differences in fairness.”

The researchers built upon a framework called General Evaluability Theory, which identifies three basic ways in which people compare items in order to extract information about their subjective worth. We may use our own built-in experience of the world—such as our inherent knowledge that 150-degree weather is too hot, but 70 degrees Fahrenheit is pleasant—to judge the desirability of an item. We may also rely on specialized expertise, as a jeweler does when examining a diamond. Or we may simply compare two items side by side, “such as tasting two different flavors of potato chip,” Roese explains. “When we noticed this additional pattern of ‘countability’ anecdotally, we wondered how we could connect it up with this existing theory of how people evaluate things.”

Uncountable unfairness

The authors began by designing a simple experiment to test whether making unequal rewards less countable would reduce dissatisfaction. They randomly assigned 120 Chinese university students to two groups: members of the “overbenefit” group would receive 60% of a fixed reward, while members of an “underbenefit” group would only receive 40%. Each of these groups was divided again: some people would receive a “countable” reward in the form of cash (either six or four ¥1 bills, from a total of ten), while the others would receive an “uncountable” reward of a slice of cake (representing 60% or 40% of the whole cake).

Underbenefited participants—those who received four ¥1 bills or a smaller slice of cake—reported less satisfaction than their overbenefited peers. But those who received the cake were much less dissatisfied in general: on a seven-point scale, their average satisfaction rating was a 5. The average satisfaction of those who received the smaller amount of cash, meanwhile, was only 2. The difference between overbenefitted and underbenefitted cake-eaters’ satisfaction was also much smaller: overbenefited participants, who received a larger slice, reported an average satisfaction rating of 6—just one “point” higher than their underbenefited peers.

According to Ma, offering cake encouraged the recipients to focus on the experiential aspect of their reward—”oh, this cake is delicious,” she says—instead of “thinking about how they received less than the other guy.” She and Roese conducted eight additional experiments designed to test the limits of this effect. “We did it with kids and adults, Americans and Chinese, other goods like cooking oil—trying to generalize it outwards,” Roese explains. “The consistency of the results—that uncountable rewards leave people less dissatisfied even when they’re unequal—was impressive and intriguing.”

“Upsizing” satisfaction

The results have clear applications for marketing promotions, which can create feelings of dissatisfaction in consumers who miss out on the deal (either because the promotion ends or because supplies run out). Ma and Roese created an experiment in which a “countable” promotional reward, such as “buy one get one free,” was contrasted with an uncountable reward (in the form of “upsizing” a product or offering 50% more shampoo in a container, for example). The effects on satisfaction still held. “You feel happy if you get the reward, whether it’s ‘buy one get one free’ or upsizing,” says Ma. “However, if you miss out on it, you feel more upset when it’s ‘buy one get one free,’ which is more countable.”

The authors say that their results suggest that less countable promotional strategies, like upsizing, will result in more customer satisfaction overall. Ma and Roese are currently studying how the countability effect functions in credit card rewards programs, which often offer number-based bonuses such as extra “points” or “miles.” Instead of these offerings, rewards could be presented in “experiential packages” such as vacations, trips, or goods.

Cultures of counting

If highlighting experiences over quantities increases satisfaction, should companies start paying bonuses to their employees in cars instead of cash, as the record producer in “Nashville” did? Not necessarily, cautions Ma. Offering experiential rewards may reduce dissatisfaction when the rewards are unequally distributed, but uncountability “can also be costly,” she says. “You need to purchase real goods and distribute them, and you also need to figure out what people really like or need. That’s a lot more work than just issuing cash.”

Furthermore, cultural expectations can complicate matters. According to Ma, China has a decades-long tradition of issuing employee rewards in the form of real goods. “Chinese companies survey their employees regularly so they know what to do,” she says. “Even in recent years, we still use a combination of real goods and money. But in the U.S., where this practice is less common, an employee might think, ‘I don’t really need a trip to New York, why did you give me this?’ Or, ‘I don’t need a coffee maker, I already have one.'”

Further study to determine these “boundary conditions,” as Roese calls them, will be necessary to put the countability effect and its potential applications into proper context. “It’s natural to draw comparisons and also to think about ideals,” he says. “What’s the best I can get? What’s the optimal way to behave? But these are things we’re thinking about at the cost of appreciating what’s right in front of us.”

Reproduced with permission of the Kellogg School of Management and Kellogg Insight. © Kellogg School of Management at Northwestern University.

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