Incentives

Incentives and Rewards – Part 2

Carrying on from last weeks’ review of the latest IRF Academic Quarterly report, we are now moving on to the next of our three key topics surrounding reward programmes:

  1. Intrinsic motivation and extrinsic incentives
  2. Responses to points, cash and gift card programmes
  3. Choosing non-cash rewards for maximum satisfaction

2: Responses to points, cash and gift card programmes

There have been debates about the relative merits of different reward programmes or “currencies” for many years and they will never be entirely resolved. When dealing with groups of people, their attitudes and reactions will be individual, not completely uniform, but trends and patterns of behaviour will provide indicators to the best overall options.

The psychological factors that determine responses to different types of employee rewards (points-based, cash or gift cards) are important considerations in planning and designing an incentives and reward programme or strategy. Encouraging involvement and “buy-in” to a new programme is a key contributor to its success, both in terms of employee engagement and business outcomes.

The impact on participants is manifested by how much they discuss the potential rewards with colleagues, friends and family members. The more they think about what they are required to do to prepare, the more attention they will pay to achieving the required performance standards. That in turn will focus their minds on the rewards being offered.

The research conducted by Professor Patricia Norberg was based around the theory that reward currencies used (points, cash or gift cards) matter significantly in affecting participants’ perceptions and behaviour. The longer view of incentives and reward programmes is that they can also improve employee loyalty and commitment, thus reducing staff turnover levels. That adds an indirect cost saving to the incremental increase in revenue which is a core objective of every incentive programme.

Extracts from the IRF’s summary of the research

The Incentive Research Foundation’s report on the research includes the following information:

The author relied on survey results from 747 working people to test the following hypotheses:

  1. Those who receive reward points will plan for (think about) their use significantly more than recipients of cash or gift cards.
  2. Those who receive reward points will talk about the rewards significantly more than recipients of cash or gift cards.
  3. Those who receive reward points will be significantly more satisfied with their rewards than recipients of cash or gift cards.
  4. Those who receive reward points will be significantly more able to remember how they used their reward than recipients of cash or gift cards.

The IRF’s summary then lists these findings from the research:

  1. Points recipients were significantly more likely to report planning the use of their reward than were cash or gift card recipients.
  2. Points and gift card recipients were about equally likely to talk about their reward; significantly more than cash recipients.
  3. Points earners were significantly more satisfied with their rewards than gift card recipients but only about equally satisfied as cash recipients.
  4. The great majority of recipients of all three types of reward programmes recalled what they did with their reward (spent to buy something vs. spent on paying a bill, or could not remember). 99% of points and gift card users could recall what they used the reward for versus 97% of cash recipients. Almost one-third of cash recipients said they spent their reward on bill payments, a choice that was not available to points earners and possible for just one of the gift card recipients in the study.

Thoughts and observations

The structure of rewards programmes can be a challenge, particularly when multiple rewards currencies are offered. The thresholds for qualification and the limits on reward values are examples of the complexities that rewards systems can present. The human instincts of competition and survival are at play too. There is always a degree of insecurity in the workplace and any confusion about how rewards are decided can undermine confidence and motivation. Handling the double-edged incentives sword requires skill and judgement, but when used properly it will improve results for most organisations.

The conclusions of the research may seem to focus on quite nuanced factors, but they are relevant and can be significant in how well they sustain performance standards and return on investment in operations, marketing and sales. The main objectives of using reward programmes are to recognise and reinforce the value of the employee’s contribution and to encourage their continued commitment.

Rewards are not restricted to cash and vouchers, as points-based systems allow for points to be translated into a variety of awards. Points-based rewards can be earned on an individual or team basis and have the advantage of bringing people together who may share a common purpose or interest but not necessarily work together. This can include people based in different locations or company divisions, but it also embraces channel partners such as dealers and resellers.

The greater flexibility of points-based reward programmes is a major consideration in keeping programmes fresh and in sustaining enthusiasm over repeated business cycles, either monthly, quarterly and annually or when repeated in successive years. Live events such as corporate hospitality, conferences and group travel incentive programmes are unique amongst the reward currencies in that they provide a shared experience and are much more likely to create lasting memories for the qualifying recipients.

Citation:

This summary is based on a report by Professor Patricia A. Norberg, Quinnipiac U. (2017).
It was published in Performance Improvement Quarterly. 29 (4) 375-388.
Availability: This article is available for purchase at PIQ:
https://doi.org/10.1002/piq.21233 or free on request to Allan Schweyer: allans@tmlu.org

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