Making a case for incentives in 2023

from The Incentive Planner 2022

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Considering much of the world teeters on the edge of a recession, many companies are looking to cut costs. Perhaps they’re eyeing their incentives budget for the chopping block. After all, is it right to send some people on a luxury, all-expenses-paid South African safari at a time like this?

According to academic research published by the Incentive Research Foundation (IRF, theirf.org), the short answer is yes. Here’s why.

The value of incentives has never been higher. The Incentive Planner unpacks why this strategy to motivate and reward staff and clients is so suited to the times we live in.

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NON-CASH INCENTIVES ARE EFFECTIVE

Countless IRF academic studies bear out that, when done well, non-cash incentives are very effective at achieving a host of desirable outcomes. They improve staff motivation and therefore performance, which positively impacts the company’s bottom line. They help to promote the company’s culture and values. They build loyalty, which entrenches client and partner relationships; or, in the case of employees, reduces staff turnover. While it might be necessary to cut costs, cutting costs that will ultimately reduce your company’s performance might not be the best route to go.

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IT COULD REMEDY WORK-FROM-HOME CHALLENGES

Despite lifted lockdowns, many people are not returning to the office – at least not full time. This new way of working comes with its own set of adjustment challenges. A survey by the IRF reveals that 400 out of 405 managers are concerned that remote working will lead to isolation, communication challenges and reduced exchange of ideas and information. YOU GET MORE BANG FOR YOUR BUCK

Allan Schweyer, chief academic advisor at the IRF, published a research article titled ‘Non-Cash Rewards in a Period of High Inflation’. He writes that non-cash rewards are still effective during a recession while also being more economically viable.

As we face an uncertain future, companies may be reluctant to increase salaries and benefits in line with inflation. Yet they still need to recognise high-performing staff. This is where non-cash incentives are preferable. These types of rewards are evaluated by the feelings they evoke and are not easily quantifiable like cash rewards. Therefore, they can more easily deliver an outsized effect compared to their capital outlay.

Schweyer adds, “Firms that offer merchandise, travel, and other non-cash rewards will likely pay more for them today than they might have two years ago, but effective sourcing should keep those costs below the overall inflation rate.”

Angela Fan, Emily Ford and Ji Hyoung Kang, of Carnegie Mellon University, co-authored a paper with Schweyer called ‘The Role of Incentives in Today’s Decentralized Workforce: Attract, Retain & Build Culture’. They write, “[R]ewards and incentives that impact behaviours that overcome the demotivators associated with remote work will be extremely important. Examples of these behaviours include those that encourage collaboration, peer recognition and appreciation, autonomy, and accountability. Also important are behaviours that build a strong culture, including knowledge-sharing, teamwork, resilience, customer service, inclusivity, purpose and meaning, etc.”

While they don’t believe that incentives and rewards will solve all remote work problems, they do believe they have an important role in the solution, and that incentive designers will need to work closely with HR to get this right.

THE JOB MARKET HAS BEEN DISRUPTED

The global pandemic has disrupted many things, including the global workforce. Many companies are now seeking to attract and retain new talent.

Recruitment advertiser Appcast found that when firms include this information in their job listing, they attract up to 300% more applicants than those who do not. Meanwhile, a study Schweyer did at Harvard Business School in 2019 found that applicants expressed up to 50% more interest in a position that listed benefits and rewards – even when all other variables were equal, and the other job listing had a better starting salary!