Aline Holzwarth
Head of Behavioral Science at Pattern Health and Principal at The Center for Advanced Hindsight, Duke University
Table of contents:

Your company has had a good year, so you’ve decided to give your employees a bonus. That extra $1,000 deposited along with their paycheck will certainly motivate them to perform their best in the upcoming year. Or will it?

Incentives can be a powerful way to motivate employees. However, many traditional incentive programs don’t do much to influence behavior. The distinction between the incentive programs that work and those that fail can depend on the degree to which they are grounded in behavioral science. For many years, behavioral scientists have been studying motivation, and the library continues to grow with research-based recommendations for designing effective incentive systems.

To ensure that your incentive program has your intended impact on behavior, take it from the experts and design it to optimize both your timing and type of incentives.

Optimize timing by making incentives immediate

For incentives to have an effect on behavior, they must be paired with past behavior. The purpose of incentives is to encourage more of a desirable behavior -- whether it is responsiveness to customer requests, greater sales of a particular product bundle or taking on high-risk but high-revenue customers that could result in a more lucrative relationship over time despite the greater up-front investment.

In order to encourage these positive behaviors in the future, it has to be clear to employees which controllable behaviors they need to exhibit to reach their targets. They need actionable feedback about their past behaviors to understand which specific actions to do more of in the future, and their reward should be associated with that specific behavior.

One way to strengthen the association between behavior and reward is to simply link them in time. So, in order to help employees make the connection between their efforts and their rewards, there should be a short distance in time between the desired behavior and the reward. You can do this by delivering incentives immediately after desirable behaviors are demonstrated. The closer in time that the reward is given, the stronger the association will be between the behavior and the reward -- and the more likely that the employee will continue the positive behavior in the future.

Optimize type by making incentives tangible

Invisible dollar bills are difficult to get excited about. Employees don’t see their direct deposits, and often don’t even realize when they’ve received a bonus. They certainly don’t place these additional funds into a separate “mental account” where they think of their bonus money as different than the money that pays their rent and utilities. But if depositing bonuses into paychecks is such a bad idea, then what is the right way to offer incentives?

One way to get more bang for your buck is to avoid the buck altogether. Instead of offering financial incentives (like that invisible direct deposit), offer tangible rewards: give gifts or prizes instead of dollars. Tangible rewards can take the form of consumable goods (think delicate truffles, classic whiskey), hedonic luxuries (like noise-canceling headphones, a leather handbag, golf clubs), and even the occasional vacation (cover the pain of travel costs and lodging at a minimum, but it’s never a bad idea to throw in a margarita for good measure).

One research study found that the lure of tangible non-cash incentives such as merchandise or travel increased workers’ frequency of positive rumination about the reward, which led to a corresponding increase in performance. The anticipation of a future reward, then, can increase motivation just as the memory of that behavior-reward pairing can influence future behavior. If you don’t want your bonuses to go unnoticed, then you need to make them noticeable with tangible rewards.

What can this look like in practice?

Research in behavioral science suggests optimizing incentives by making them immediate and tangible. But how can you implement this in your own practice?

Start by identifying the behaviors that are most important for your employees to be successful, and then pair incentives with those behaviors, giving rewards immediately after behaviors are exhibited and explicitly calling out how the behavior is connected to the reward. Think of each reward as targeted feedback. Along with the reward, you could even say, “Great job, Olivia! You’re getting this reward because you exceeded your previous record of $10,500 in deals closed in a week.”

And instead of giving Olivia $100 in cash deposited into her bank account a year later, give her two tickets to the basketball game you know she’s been dying to go to next week. She’s going to remember that game fondly for years to come, along with the kind beneficiaries who supplied her with the tickets. And you won’t be surprised when, next week, Olivia again surpasses her previous sales record.