Push The Button: Applying the Science of

Reward and Motivation to theWorkplace

Produced by One4all Rewards

2015

www.one4allrewards.co.uk

INTRODUCTION

In March 2015, the CIPD commisioned a report into the behavioural science of rewards: ‘Show Me The Money*’. The authors stated their belief that “the time is ripe for a renewed look at how we design and apply reward strategies.”

It provides a fascinating overview of current academic thinking about how rewards and incentives change worker behaviour and concludes by inviting others to carry out further research, testing its theories in specifc, real-life scenarios.

At One4all Rewards, our passion is helping organisations create effective programmes for rewards and incentives. So we decided to take up their challenge. This research (a study of over 1,000 workplaces in the UK) tests some of the theories of behavioural science in a workplace environment.

We believe that our findings and conclusions can help organisations use their budget and bonus pots more effectively, as well as challenging established practices about how reward programmes are structured.

By applying a little science, you can learn a lot about how best to push the button for increased motivation and productivity.

Declan Byrne,Managing Director, One4all Rewards

* CIPD’s Show Me The Money Report can be downloaded at

http://www.cipd.co.uk/hr-resources/research/show-money-behavioural-science-reward.aspx

Are Businesses Wasting Money on Bonus Culture?

64% of employees are given some form of incentive and reward (over and above their salary) for their work.

These ‘bonuses’ therefore represent a sizeable sum for UK businesses, but how effective are such rewards at increasing the motivation and productivity of the workforce?

In ‘Show Me The Money’ the authors reveal how creating effective reward programmes needs to be about more than simply handing out large sums of cash.

Failure to apply the ‘science’ of motivation can lead to unintended consequences (e.g. people chasing bonus targets at the expense of good practice). Conversely, poorly applied rewards might not offer a good return on investment – for example they may not have an equal motivational impact on all workers.

In addition, it is argued that rewards culture that focusses solely on bonuses ignores the non-financial aspects of motivation. For example, rewards should also factor in the power of praise or the need to recognise the non-financial aspects of job satisfaction (e.g. the desire for personal improvement).

We’ve surveyed 1,000 UK workers to lift the lid on what motivates them and how reward schemes might be better tailored to push their buttons for enhanced productivity.

Do Rewards Work and How Are They Applied?

The first question to consider is whether rewards and incentives have any impact on motivation and productivity.

For the vast majority of workers, they do. 74% of workers say that they are more motivated and increase their efforts if there is some extra incentive being offered.

However, for the remainder (26% - over a quarter of workers) either they work to the best of their ability at all times or they already feel well rewarded enough for further incentives to make no difference.

Therefore, it is clear that financial rewards need to be applied with care to avoid wastage – i.e. targeting them at workers where they are likely to positively change behaviour.

How Do UK Businesses Currently Apply Rewards and Incentives?

2 4 6 8 10 12 14 16 18Percentage

3.08

3.77

4.07

4.17

5.06

7.44

7.44

11.41

18.25

14.88

13.89

Reward options that are regularly refreshed and updated

Financial penalties for poor performance (including loss of normal bonus or benefits)

A choice of reward options (e.g. pick from a list of options)

Weekly or monthly rewards to recognise good work or effort

Public praise and recognition for a job well done – e.g. in front of the whole business or team.

Perks – e.g. you can take products home, receive discounts or have use of company facilities

Bonus given to all or most staff regardless of individual performance

Bonus linked to team performance

Bonus linked to your individual performance

Christmas bonus

Benefits – e.g. health insurance, pension contributions

The most common non-salary based rewards and incentives are:

20

How Do UK Businesses Currently Apply Rewards and Incentives?

10 20 30 40 50 60 70 80 90Percentage

53

58

59

61

63

72

72

73

88

82

75

Administrative and support services

Healthcare

Professional services (e.g. law, accountancy)

Trades (e.g. construction, plumbing, etc.)

Manufacturing

Leisure and Travel (e.g. restaurants, parks, etc.)

Retail

Information and communications

Transport

Financial services (e.g. banking, insurance, etc.)

Utilities

The most common non-salary based rewards and incentives are:

100

Education

Local or National Government 50

50

It’s True – Money Isn’t Everything

Our survey found that while money is a powerful motivator, large bonuses aren’t always the best motivator when it comes to cost effectiveness.

We asked which forms of incentive or reward would lead to a ‘significant increase in efforts to improve the quality of your work and make you more productive’.

Large sums of money motivated the largest numbers of people, but not the majority.For example, a reward equivalent to 10% of annual salary would NOT significantly change the behaviour of 78% of workers.

Even a reward equivalent to 25% of annual salary would have no impact on 59% of those questioned.

Therefore, simply trying to motivate and inspire employees with cash is not going to work for the majority and is going to have a relatively low return on investment.

Non-Financial Aspects of Rewards

Behavioural theory suggests some other – non-financial – forms of motivation.

Autonomy – the desire to direct our own lives – Mastery – the desire to continually improve at something that matters to us – and Purpose – the desire to do things in service of something larger than ourselves.

We tested the extent to which these factors were a motivation for our sample:

• Autonomy – the desire to direct our own lives - a motivator for 21% of people

• Mastery – the desire to continually improve at something that matters to us – 15% of people

• Purpose – the desire to do things in service of something larger than ourselves – 13% of people

We also found that the importance of these non-financial motivators changed over our working lives.

For example, ‘mastery’ was the key motivator for 18 to 24 year olds (20% were motivated) and ‘purpose’ was highest amongst 35 to 44 year olds (18%).

Therefore, understanding the underlying motivation of workers and targeting rewards to reflect those interests would help increase the effectiveness of such programmes.

5

10

15

20

25

30

35

40

45

50

26.59

If you are saving up for a big treat (e.g. major

family holiday or a luxury car).

What types of schemes would be welcomed by employees?

Perc

enta

ge

23.16

If you earned a low salary.

19.54

If you were unable to treat your partner or family (e.g. nice presents or a

holiday).

18.85

If you had significant debts.

18.55

If the rewards help replace

regular monthly costs – e.g. childcare or

pension contributions.

14.68

If you believe that the work

you do is vitally important in

order for your company to succeed in the future.

13.19

If it is given for you in exchange for achieving a personal best

or developing a new skill.

11.61

If you believe that the organisation you work for carries out a role that is important for society as

a whole (e.g. it makes people’s lives better).

However, Rewards Are Not Always Directed Where They Would Have Most Impact

Accounting for how the impact of rewards and incentives programmes will vary according to personal circumstances is not always considered by those responsible for designing them. The most obvious example of how this can fluctuate is in the case of younger and more junior staff.

29% of people are excluded from some staff reward and incentive opportunities, and the younger a worker is the more likely they are to be excluded from these rewards and incentives:25 to 34 years – 48% excluded35-44 years – 40%45-54 years – 18%55+ years - 15%

And yet, it is these employees who are most likely to enhance their work as a result of the offer of incentives and rewards.25 to 34 years – rewards and incentives would create better work - 88%35-44 years – 85%45-54 years – 72%55+ years - 59%

It’s easy to conclude that rewards and incentives are often used as a perk – something more likely to be offered to those higher up the corporate food chain as a ‘top-up’ to salary. However, research suggests that inverting this practice - spreading rewards amongst a larger group of more junior workers - is likely to have a bigger impact on productivity.

The Importance of Individual Recognition

Another clear finding is the extent to which personalised rewards (i.e. those based on individual effort) are better suited to changing behaviour.

The effort put in by workers increases directly according to how closely the criteria for success reflects their own work.

A standard company-wide reward for hitting a target (e.g. achieving a company-wide sales figure) is likely to positively change the behaviour of 10% of workers.

Focusing that reward on a team-based target increases that change to 14% of workers.

Concentrating on a specific individual’s performance causes the impact to leap to 25% of workers – 2.5 times the impact of the company-wide reward.

Therefore, spending the time to put detailed, individual measures in place pays dividends when it comes to assessing the return on investment from increased motivation and productivity.

What Other Lessons Can We Learn?

Using the impact of a standard company-wide bonus as a base measure (causing a 10% change in worker behaviour), what other ways can rewards and incentives be tailored to increase this impact?

Smaller, but more regular rewards

Having regular monthly or weekly incentives came out strongly – and proved effective for 19% of workers

Benefits that relate to ‘savings’ on monthly household expenses

Items that make salary go further by replacing some monthly outgoings – e.g. pension contributions, health insurance, travel or food savings – this was valued by 18% of workers

Loss aversion – the theory that people work harder to avoid losing a benefit they already feel they hold

This appears to be less effective than a standard bonus. Just 9% would be motivated if they knew that part of their salary or bonus would be withheld if reasonable targets weren’t met

When it Comes to Rewards, Avoid One-Size-Fits-All Thinking

So what conclusions can we draw from our research?

Firstly, that behavioural science clearly has some useful lessons to teach us when creating reward and incentive programmes and that – with so many companies offering such schemes – there are huge savings to be made by focusing on the return delivered by such investment.

Large bonuses will have the most impact, but aren’t cost-effective and still won’t secure the desired response in the majority of workers.

Organisations should begin by understanding the personal values and circumstances of the individuals they are seeking to motivate. For some staff, for example, offering the opportunity for personal development (e.g. through training) might be incentive enough.

They should also see rewards as a means to influence behaviour, rather than as perks for senior staff – therefore directing budget at those workers most likely to positively change their behaviour.It’s also wise to take the time to create personalised targets that unlock rewards, which can more than double the effectiveness of the scheme.

Rewards don’t always become more effective as the cash value increases – using smaller regular rewards, or benefits that help workers cut down on monthly household expenses, can be more effective (especially amongst the right groups).

The report highlights for me the message once again that you’ve got to treat people as individuals. This makes very practical sense when considering financial incentives in order to get the best return on that investment but more broadly, for more en-gaged and motivated employees, you’ve got to treat people like people, which means we don’t all want the same things or respond in the same way.

‘One size fits all’ is a too crude and ineffective approach to people. If I’m being frank, it’s lazy. Like so many things in life, ‘you get out what you put in’, that applies to your customers and that applies to your employees.

High performing organisations are built on and driven by motivated, engaged and high performing people. People like to feel understood, relevant, listened to and tailoring your incentives and rewards to work best for an employee is just one way, and one part, of a more personalised, less indifferent approach to getting the best performances from your people. Businesses lose customers very often because of that attitude of indifference, and guess what, people leave well paid jobs for that reason too.

John Byrne

High Performance CoachMindcoach.ie

Inspire, motivate and engage your staff

W: www.one4allrewards.co.uk

T: 0207 608 2008