by Matt Alderton | April 27, 2017

"Behavioral Economics" isn't just a class you almost failed in college. As it turns out, it's also a really useful discipline to leverage when creating incentive, rewards, and recognition (IRR) programs, according to the Incentive Research Foundation (IRF), which today published a new guide to help IRR professionals learn and apply behavioral economics approaches in the realm of employee performance.

Titled "Using Behavioral Economics Insights in Incentives, Rewards, and Recognition: A Nudge Guide," the guide is based on the fact that 70 percent of human decision-making is emotional rather than rational. Its goal, according to IRF, is helping employers understand what actually motivates employees, why some incentives are more effective than others, and how they can strategically apply behavioral economics in their businesses.

The following are just a few of the nuggets IRF imparts in the guide:

  • Incentive programs should focus on using nudges: Subtle incentive tools/practices known as "nudges" make a reward system more user-friendly and can maximize its emotional impact, according to IRF, which notes that emotionally compelling rewards "hit the mind harder, are remembered longer, produce quantifiably better results from employees, and influence the internal brand the most."
  • Employers must move beyond monetary rewards: Experiential programs involving travel tend to generate warm memories and typically appeal to more employees than their cash equivalents, IRF asserts.
  • Employers should reward teams instead of individuals: Cooperative incentives are more effective and valuable than competitive incentives, according to IRF, which says emotional pressures can persuade people to do things they don't want to do -- but won't make them do those things well.
  • Emotionally meaningful incentives have benefits that extend beyond improving employee productivity: Happy employees eventually become brand ambassadors who extol the company's virtues to non-employees -- including current and potential customers, vendors, and media, according to IRF.


"Behavioral economics gets to the heart of why people make specific choices, and it can be an effective resource in designing IRR programs that motivate employees' best performance," said IRF President Melissa Van Dyke. "By understanding the role of emotion in motivation as explained in 'Using Behavioral Economics Insights in Incentives, Rewards, and Recognition: A Nudge Guide,' IRR professionals can use this knowledge of human drives to make work more satisfying, enjoyable, and rewarding."

A follow-up report focused on the science behind behavioral economics -- titled "Using Behavioral Economics Insights in Incentives, Rewards, and Recognition: The Neuroscience" -- will be published in May.