Alternatives to bonuses and other cash rewards may be more effective in motivating staff, according to a new report by the Chartered Institute for Personnel and Development.
The report, ‘Show me the money! The Behavioural Science of Reward’, highlights how reward experts need to understand better what increases employee motivation.
It says employees’ perceptions of rewards are defined by the circumstances in which they are received. For example, a bonus received during tough economic times will be perceived as having much greater value than the same reward given in times of prosperity. On the other hand, it says, a bonus may be perceived as having less value if the recipient considers their own performance to be stronger than other employees who receive the same amount as part of a team reward. It states: “Given the tendency of people to overestimate their own abilities when performing familiar tasks such as those at work, reward and HR professionals need to be particularly wary of promoting a performance-based pay scheme to avoid disillusionment if employees’ rewards don’t match their expectations.”
Jonny Gifford, Research Adviser at the CIPD, says: “These are interesting and challenging times for reward specialists. We need to recognise employees when they go the extra mile and add increased value, but there are a number of behavioural factors that should be considered when shaping a reward programme. Crucially, we must acknowledge that monetary rewards aren’t everything and that they can even distort people’s motivation. For example, enticing the workforce with financial incentives and a strong bonus culture can lead to unwanted, risky and even unethical behaviours. Equally, because we tend to overestimate our ability as individuals, many if not most people find performance-based pay attractive in the first instance, but ultimately disappointing and demotivating. The key is having a flexible reward package that takes into account behavioural nuances and doesn’t rely solely on a wad of cash as the only means to motivate staff. It’s a change in direction for many but should also be welcome news for organisations who, in a challenging economic context, need to be more creative with their rewards package.”
The report suggests that alternative rewards can build intrinsic motivation among employees. It notes that recognition through appropriate symbolic awards – for example, through employee award schemes or discretionary ad-hoc gifts from line managers – are consistent with a workforce whose desire to succeed is self-sustaining, rather than driven by a desire to earn more money. These rewards also have the added benefit of being cost-effective and easy for businesses to disperse at ad-hoc moments, rather than building up to a single moment of reward in any given year, it says.
The report also shows the importance of time and timeliness in rewards. It also explores the difference in perception between instant gratification and rewards that are of equal value but deferred, such as pension contributions. Younger employees are least likely to value such deferred benefits, it says.
Charles Cotton, Performance and Reward Adviser at the CIPD, says: “Workplace pension schemes boost employee pay packets by thousands of pounds over the course of their employment but without the instant gratification of seeing that money land in their bank accounts each month, many employees fail to value the schemes. When it comes to reward, it’s important that businesses regularly reinforce the total value of the package that they offer to individuals and pay equal attention to both short and long-term rewards. This can include communication and education, but should form part of a well-thought out financial wellbeing strategy.”
The report concludes that the best reward strategies take into account both individual and group success, while not being overly complicated. It says: “By rewarding people for their individual performance as well as their contribution to a specific team or the overall company’s success, a business is most likely to see improved engagement, enhanced performance and good citizenship behaviours.”