Hoping For a Raise? How About a Gift Card, Instead?

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Many a disgruntled employee has complained of working for peanuts. But is working for lattes any better?

Unemployment rates are still high and wages stagnant, but American workers are more productive than ever. That’s good news for the economy, but means that rank-and-file employees are working longer and harder.

And what are we getting for all that extra effort in lieu of more pay? In many cases, gift cards. That’s right: About two-thirds of companies give their employees gift cards, says the Incentive Research Foundation, and it’s the biggest and fastest growing category of employee rewards. In an Incentive Research Federation research report published last year, 12% of responding companies said they gave gift cards for quarterly or end-of-year bonuses, and 43% said they gave gift cards as holiday gifts or bonuses.

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Collectively, American companies spent nearly $23 billion on gift cards for employee “incentive and loyalty” in 2012. While that’s not a small number, data from the St. Louis Fed last month shows that companies made $1.8 trillion in profits in the final quarter of 2012 — a little more than the quarter before that, when profits hit a record high — even as wages as a percentage of GDP hit a record low. In that context, these small-scale rewards — most gift cards are valued at between $25 and $150 — might be categorized as token gestures, if not outright stingy.

People in the industry of incentives and recognition — the technical terms for “freebies” and “attaboys” — are quick to point out that gift cards for stores like Starbucks, Best Buy, or The Gap aren’t technically replacing raises and end-of-year bonuses. And that is technically true: Compensation is generally given (and taken away) by a company’s finance department. Goodies like gift cards are generally doled out by the HR department. But that doesn’t mean workers don’t feel like they’ve just had their raises replaced by frappucinos. If the folks in HR are doing their job correctly, though, here’s the funny part: You won’t really mind so much.

Companies have financial reasons for liking gift cards. For one, they often pay less than the face value of the cards. Like almost anything else bought in bulk, you can buy gift cards at a discount if you’re willing to spend big bucks. There’s also relatively little manpower required to issue these plastic pats on the back. The IRF included this explanation from Damon Riddle, an automotive incentive manager for Suzuki Motor Corporation, in its report:

“When comparing to card programs, merchandise and travel programs require a significant investment in time, resources, and funding. If organizations are struggling to justify an incentive program to key decisionmakers, on the surface, the economics of a card program will always be the most attractive.”

In the IRF’s research, the top reason managers listed in favor of gift cards was that they’re easier to give than other types of tangible kudos like merchandise. “People like receiving them more” was second.

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In addition, companies tend to get a lot of bang for their buck from gift cards in terms of appreciation. So-called “closed-loop” gift cards, which have to be used at a particular retail brand, basically force employees to spend the card on something indulgent. (Restaurants and electronics stores are two popular categories.) “That emotional reaction, it’s called guilt-free buying,” says Rodger Stotz, chief research officer for the Incentive Research Federation. “It’s not meant to change your lifestyle, it’s to express appreciation and value for what you’ve recognized for.”

What’s more, HR managers — good ones, anyway — don’t just stick a card in an interoffice envelope and scrawl your name on it. Gift cards are often delivered with public thanks and an acknowledgement of your work. There’s probably applause. There might even be cake.

“You get a gift in front of the recipient that makes them feel really special,” says Alex Calicchio, president of Incentive Gift Card Council and president of C2 Consulting Services. In a business climate where raises and bonuses are in short supply, “Companies need to find a way to keep the good employees,” Calicchio says. “You need to reward people to keep them motivated.”
Mochachino, anyone?
19 comments
bgilpatrick
bgilpatrick

Gift cards are not intended to replace raises. Smart employers know that an incentive program that incorporates gift cards as a reward drives a deeper level of employee engagement and satisfaction. Gift cards speak to a wide variety of individual interests and preferences, so they are perfect in terms of highlighting 'choice'. Many employers award points for achievements and service anniversaries that can be saved long-term for something significant or redeemed immediately based on the employee's discretion. I'd much rather have a gift card where I can buy something I really want, over a plaque with my employer's logo on it. Wouldn't you?

KLVinchey
KLVinchey

@TIME I get gift cards AND raises! And I work in the housing industry.

Novembergal
Novembergal

@TIME at this point gift card is nice if the company is being transparent about profits and projections hence grateful for job and be loyal

deLIBERnATION
deLIBERnATION

@TIME According to a couple of employees they got $20 gift cards for Christmas and then were TAXED on them in their pay checks

okayfine
okayfine

My boss fights to get more money for us, but is always turned away by HR & Payroll. His own boss suggested that he get some gift cards to use as bonuses - he doesn't need to go through either HR or Payroll for them. He knows I like the Amex cards because I can spend them on necessities, so he either gives me a choice from a stack or gives me one of those. I'd rather have the raise because it's cumulative, but a gift card is still better than nothing.