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WORKSPAN DAILY |

Behavioral Economics in Compensation Strategy

Editor’s Note: Workspan Daily will be reproducing a monthly Compensation Café blog post for the benefit of our readers and to encourage further discourse on topics vital to compensation professionals. New to WorldatWork? Please feel free to join the discussion in our Online Community or send your thoughts to workspan@worldatwork.org.

Behavioral economics research can teach us many ways that our compensation programs can be more effective.

The findings can also make us wiser in our day-to-day work. Some of the findings verify long-held beliefs but many more are counterintuitive. So if we remain unaware of the research findings, we will literally be less effective than we can be. Not a great foundation for a compensation practice! Especially since there are numerous findings that should be applied to plan design.

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The goal of behavioral economic research is to find out how to influence employees and customers to become more emotionally engaged, and thus more likely to act. Much of it is complex, but there are fundamentals, too. Here are a few.

People Prefer the Path of Least Resistance
I'm pretty sure that we don't give this enough attention. The status quo is fine with most people — this is not couch potato behavior, but it's sure not about innovation, either.  This is especially important to notice now that employees are finding some comfort again in habits. If you want employees to improve, change, or strive, you need to make the new, alternate behavior much more appealing. In a time of 2.5% salary increases and bonuses with flimsy links to everyday work, it's hard to engage people beyond job security unless you have career development alternatives to offer. Employees have told us in national surveys that future success and business insight are strong motivators, so why not act more decisively on these research findings?

How does this behavioral economics fundamental apply to your day-to-day work? Any proposal you make is influenced by it. Managers and executives are just as happy with the status quo —although they'd never admit it. Great ideas don't sell themselves. Your proposals need to specify not only what should make the new idea appealing to your audience, but also how you'll overcome the barriers to success. Many audiences see these barriers as nothing less than land mines, so you need to educate them about alternatives.

Behavior Is a Function of the Person Plus the Environment
We put our laser beam on the individual in our plan design, often shutting out the other parts of the mix. Many a plan design has failed because employees don't have the time or resources to make the shifts that we are asking of them, or because their work environment is so overloaded, they can't budge. Manager support is critical not only as a communication channel but as a monitor for the environment. Without regular contact with managers, you won't be able to keep a plan design running effectively because you won't know how to adjust or support the environment.

How does the notion of the environment matter when there are people that you need to influence? Working with an executive team on a new project is another example of creating an environment that enables you to influence a person.

Do your homework on the current issues in each department with which you need to collaborate. Think through how their business environment affects their need for your new project. Will it clearly help them achieve their business goals, or if not, how realistic is it? As you move on with an idea, schedule short individual meetings with decision makers to confirm your understanding of their business environment, and float a version of your new plan that reflects their needs. Learn from the discussion. This type of background work will create an environment for open discussion (rather than knee-jerk reaction) at the formal proposal meeting.

People Take Far Less Time to Make Up Their Minds Than We Imagine
First impressions do count, the research indicates, because the first few minutes of a presentation or meeting is when you garner support for your new idea. Plan your communications — interpersonal and organizational — with that in mind. Every one of us can improve on this one.

We need to keep them engaged throughout our communications, of course, but we also need to be alert to the early judgments they are making and reflect that understanding in what is said.

About the Author

Margaret O'Hanlon Bio Image

Margaret O'Hanlon, CCP, is founder and principal at re:Think Consulting and a founding contributor of Compensation Café.

This article was first published at Compensation Café on Jan. 26, 2021.


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