Infusing Behavioral Economics Into Incentive and Recognition Programs

Jane Sarles Larson

Three different people with different facial expressions

Here’s a crazy trick I know: no matter where you live or where you shop for groceries, I bet I know exactly where they keep the eggs, milk and cheese.

They’re as far from the front doors as possible. Way in the back.

Am I clairvoyant? Do I have a sixth sense for grocery stores? Not exactly.

Grocery stores are designed for the maximum amount of walking to pick up the staples. Dairy, meat, produce and cereal all have rows and rows of other tempting items between them. And the more time people spend in a store, the more they buy.

That’s just one example of behavioral economics. And behavioral economics is fast becoming a trait smart companies are weaving into their incentive and recognition programs.

What is Behavioral Economics?

Basic economics principles such as supply and demand, trade and scarcity are pretty easy concepts to understand, but they’re simple because they all assume that people act rationally all the time, which we don’t. Outside of a vacuum, they don’t work quite as well.

Simply defined, behavioral economics is the application of psychology to human decision-making. Unlike traditional economics, which assumes that human beings always make optimal, value-maximizing decisions, behavioral economics allows for the effect our emotions and time constraints have on choices.

Have you ever been in a rush and bought $5 drive-thru Starbucks rather than make coffee at home for a tenth of the price? It’s not the most rational choice, but it made sense at the time.

Participants approach incentive and recognition programs in the same way. They might be drawn to similarly irrational behavior that makes sense in the context of the situation, but not on paper.

Related: See what the Incentive Research Foundation has to say about the intentional application of intrinsic and extrinsic motivations in their new report.

Behavioral Economics, Incentives and Recognition

Why should HR professionals care about behavioral economics? It’s simple: your employees’ choice to stay with your company—one of the ultimate goals of HR—is essentially an economic one. Employees weigh what they receive from you with what they receive from another company.

Traditionally, incentives and recognition have focused on extrinsic motivation—tangible awards, cash and more. While this extrinsic approach is relevant, behavioral economics proposes that an exclusive focus on the extrinsic misses the bigger picture of human motivation.

And experts agree.

“In general, both standard and behavioral economics are interested in the same questions and topics: the choices people make, the effects on incentives, the role of information, etc.,” said behavioral economist Dan Ariely. “However, unlike standard economics, behavioral economics does not assume that people are rational. Instead, behavioral economists start by figuring out how people actually behave.”

In other words, human nature is the biggest difference between traditional and behavioral economics. How your people behave—and how they approach your incentive and recognition program—can be the tipping point for success.

So, what’s the best way to infuse elements of behavioral economics in your programs to keep them vibrant and effective? Follow the EAST framework.

Related: Check out how Motivology®, our unique brand of motivation, identifies and balances the internal and external motivators needed to align and motivate your people and significantly boost your bottom line.

The EAST Framework

If the concept of behavioral economics sounds interesting, but the application feels overwhelming, don’t worry.

To help make sense of the countless best practices and techniques, the EAST Framework was developed.

When incentives and recognition programs are easy, attractive, social and timely, they are bound to include and align with many principles and techniques of behavioral economics.

Here’s what you have to do:

1. Make Your Program Easy

According to the American Transplant Foundation, 18 Americans die every day waiting for an organ transplant. And that’s a problem that’s able to be fixed, according to a Stanford University study.

In countries such as Austria, organ donation is the default option—people must explicitly “opt out” of organ donation. In these so-called opt-out countries, more than 90% of people donate their organs. But in the U.S., where people must explicitly “opt in” to donate, fewer than 15% of people donate their organs at death.

By thinking about the user experience of your participant and making your program easier to participate in, you can smash bottlenecks to success.

Consider the rules, structure and strategy of your incentive program:

  • Is the program a hassle to even take part in?
  • Are there any things that could be made easier?
  • What boxes could be checked by default to increase participation?

2. Make Your Program Attractive

It’s evident that grocery stores are laid out to maximize the time spent there. But the location of items on the shelves is carefully arranged as well.

Ever notice the Lucky Charms and Froot Loops are eye level with your 8-year-old? And that the “adult” cereals are higher up?

Appeal can be maximized by putting items front-and-center with the audience that appreciates them the most. How can your program do the same?

Consider how your program appears to your target audience:

  • Does the imagery appeal to your audience? (Pictures of office workers for an incentive program for repair technicians might not work, for instance.)
  • Does the voice of your incentive or recognition program fit your audience? Is it too formal or informal?

3. Make Your Program Social

The need to assimilate with our peers is a key tenet of human behavior. (Think of the goofy things we wore in middle school or high school to fit in!) It’s a part of Maslow’s Hierarchy of Needs—friendship, intimacy, trust and acceptance are crucial to feeling welcome in a company.

The same applies to your incentive and recognition programs. When there’s an indication that others are participating, earning and achieving in your program, others will follow suit.

Consider how your program encourages participation:

  • Do you use social proof in your program communications? (“29% of participants have already earned awards. Have you?”)
  • How can you use your team’s competitive nature to the advantage of your program? (Leaderboards that indicate which participants are high achievers is a popular tactic.)

4. Make Your Program Timely

When the holidays roll around, you might notice an uptick in mail from non-profits and charities asking for donations. Of course, this is because people feel a little more charitable and, well, more jolly around this time of year.

They understand timing. The letters they send won’t get the same result around tax time.

Incentive and recognition programs can take advantage of timing to maximize results, too. These programs have a cyclical nature, usually renewing themselves every year after crowning a winner. For instance, putting the knowledge of last year’s winner to help the next crop of participants can spur performance and boost acclimation to the program.

Consider how your program uses timing to its advantage:

  • How do you mix long-term and short-term incentives over the course of the year to stimulate participant interest and performance?
  • What unique events in your company can you tie back to your incentive or recognition program? (Corporate holidays, fiscal calendar milestones, etc.)

At the heart of every incentive and recognition program we create is an intentional blend of intrinsic and extrinsic motivators. We know just what it takes to maximize business impact and value. Find out more about our approach and how it can help your business.

Jane Sarles Larson

Jane Sarles Larson

As the Research Manager for ITA Group’s Marketing Strategy, Jane is on the forefront of market research and thought leadership. Her interest in neuroscience and how it applies to human behavior and engagement has led to the development of ITA Group’s approach to motivation called Motivology. Her 30+ years of international advertising, sales and marketing experience is second only to her knowledge of dark chocolate.