The Incentive Research Foundation (theirf.org), released a white paper, “Using Behavioral Economics Insights in Incentives, Rewards and Recognition.” Among other things, the paper discussed the role that an employee’s age, income and family status all play into how strong an impact a particular reward has on that employee. For a truly effective incentive campaign, incentive, recognition and reward (IRR) professionals should also give careful consideration to these subtle, yet extremely consequential variables:
Ease of selection – Incentive programs should focus on using nudges (subtle incentive tools/practices) to make the reward system user-friendly and to maximize the program’s emotional impact. Emotionally compelling rewards hit the mind harder, are remembered longer, produce quantifiably better results from employees, and influence the internal brand the most.
Reward type – IRR programs should offer material items and formal recognition more frequently while using intense experiential rewards more sparingly. Experiential rewards (e.g., a tropical getaway or box seats at a premiere sporting event) and material rewards such as plaques each have their own unique value as reward types and should be used in strategic combination to complement each other. One type tends to deliver more intense happiness, while the other serves as a more permanent reminder of appreciation.
Motivation type – Reward a top-performing team as opposed to using a system in which members of a team all compete against each other for a single reward. In today’s workplace, cooperative incentives are more effective and valuable than competitive incentives. Emotional pressures cause people to do things they don’t really want to do; but it doesn’t cause them to do those things well.
Don’t underestimate the value of rewards that reinforce internal motivation. Intrinsic rewards increase the recipient’s self-esteem by establishing or affirming a sense of purpose, fueling a desire to live up to expectations of peers and social norms, or helping the recipient master new skills. Intrinsic rewards create a long-lasting desire to perform well. For instance, simply celebrating reward-earners publicly by listing their names has measurable, favorable effects on productivity.
Personalization – Who does the recognizing and how personalized or public that recognition is can have an impact on the employee’s emotional response and ultimately the employee’s productivity. One employee may value and appreciate public recognition while another might respond more favorably to private acknowledgement from an esteemed colleague.
Desired impact – Ideally, every incentive and reward program will align to purpose and meaning in some way. If employees believe in the company and its purpose, freely invest in the company, trust their leaders, and develop caring relationships with the people they work with, then the employer becomes an asset in the employees’ ledgers that they will instinctively protect. In this situation, the employee feels like an owner as opposed to a renter and will act accordingly.
Rewards programs that prove you truly care about your employees are the most effective ones. This last insight from the paper ironically draws upon a principle of traditional economics — nothing ventured, nothing gained. Many of these recommended practices for designing a rewards system based on behavioral economics require employers to actually care about their people — something that can’t be faked. Pulling off emotionally meaningful rewards, in other words, may require a cultural change and a mind-set change on the part of the board, executives and managers.
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