Carrot and Man

Choose Your Carrots: New White Paper Casts Doubt on Assumptions for Rewarding Employees

Using different incentive techniques can reward employees and increase loyalty on every budget.

A new white paper released last week by The Incentive Research Foundation suggests that some commonly held beliefs about what motivates people may be wrong. “Using Behavioral Economics Insights in Incentives, Rewards, and Recognition: A Nudge Guide” two assumptions that most people make are challenged by new evidence. The first is that people make decisions rationally and in their own best interests; the second is that money is the best motivator. The paper indicates that people make decisions based on emotion, so having employees compete for rewards with teammates may muddy their motivation. Some might prefer a congenial work environment to a cutthroat one, while some could withhold leads or information to avoid helping others. Smart employers might reward collaboration in a team environment rather than fostering competition. The research also suggests that an amazing experience might generate longer lasting and warmer feelings than a purely financial reward. Plaques, certificates, and other forms of public recognition can also be effective ways to boost employee engagement and productivity.

The paper includes a summary of a theory of behavioral economics using the acronym EAST that can be helpful to incentive planners. This stands for easy, attractive, social, and timely. The top recommendations from the research paper suggest making your incentive program easy, or user-friendly; don’t make participation an extra burden on employees. At first glance, making the award attractive may not seem difficult. An exotic vacation at a five-star resort will undoubtedly give the employee great memories and a chance to unwind in a way that the cash equivalent might not. But the study found that personalization is also important and makes the employee feel that the company understands them. The employee might feel that her company knows her if the reward is a “working” holiday, for example, at a vineyard or a culinary school. Understanding an employee’s desires and helping them achieve personal as well as business goals is more likely to turn them into a brand ambassador than handing out a one-size-fits-all prize. A social approach to incentives can boost collaboration, the paper says, “in today’s workplace, cooperative incentives are more effective and valuable than competitive incentives.” Lastly, being timely in your incentives can mean utilizing different techniques. Announcing a special prize at the end of a project instead of the beginning can avoid the entitlement effect and also turn the announcement into a special occasion. Alternatively, incentive planners should look at using “hyperbolic discounting” to determine when rewards should be distributed. The report defines hyperbolic discounting in this context as the human tendency to prefer a smaller payoff now over a larger payoff later. If your team is being asked to put in extra hours to adopt a new technology or expand to new markets and the company budget won’t accommodate a resort vacation for everyone, think about breaking up the rewards so that one week your employees have the chance to earn a massage, or the next week dinner at a great restaurant. If your incentives are financial, consider a “fast start” program that accelerates payouts in the first few months. If you wait until your team is burned out, it is possible that no reward or recognition will generate enough goodwill to compensate them.

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