Lovewell’s logic: The psychology of reward

Over the past few years, behavioural economics has done a great deal to engage consumers with the finance industry – particularly with pensions savings and encouraging them to put away enough for their retirement.

But should employers be applying the same principles of behavioural science to motivating staff?

Debbie Lovewell, deputy editor, Employee Benefits

According to a report published by the Chartered Institute of Personnel and Development (CIPD) this week, a better understanding of the science behind the impact of pay and reward on employee behaviour could help employers to significantly boost staff motivation.

The report found that how employees perceive rewards very much depends on the circumstances in which these are given. In some instances, this might go against popular trains of thought from the last few years, particularly the idea that cash bonuses are likely to be hugely appreciated as individuals feel the financial squeeze.

But, in some cases, as the report points out, employees might perceive performance-linked bonus schemes to be unfair if they believe their performance to be stronger than colleagues’. In turn, this may mean they don’t attach the desired value to their reward.

Given individuals often have a self-inflated opinion about both their ability and what they are worth, this can be a tricky challenge to overcome. It almost has echoes of the playground when a child doesn’t want a particular toy until someone has it.

Earlier this week, we judged this year’s Employee Benefits Awards. Something that stood out in some of the strongest entries – of which there were a high number – was how these organisations had carefully tailored reward schemes to suit employee groups within their workforce.

So, should psychology play a greater role in reward decisions? 

Debbie Lovewell-Tuck
Tweet: @DebbieLovewell