The Psychology Behind Incentive Programs

Today, we’re making some connections between the psychology that exists in the financial world and the world of well-being incentives.

We’re talking real strategy, not simply a few helpful tips that are only surface level.

If you want to be a better well-being program leader, this is the depth at which you need to go into in order to learn how to get the results you want for your organization.

Our issue this week covers the similarities between the free market and well-being incentive programming. This connection isn’t just an interesting observation, it’s a window into a better way of structuring well-being incentive programming.

Speaking of better programming, we have put together a great resource that takes our two decades of experience in well-being programming and puts it into a very helpful eBook.

You’ll also get access to some great downloadable tools and bonus content.

You’ll learn five strategies from Propel’s incentive programming tool chest to create more impact from your incentive program investment. We help our clients create fully customized incentive programs to move their program towards their ideal vision for their organization. It has given us some great experience in making incentive programs more effective!

Now, onto today’s topic.

Incentive programs play a crucial role in driving participation and engagement within organizations, much like the dynamics of a free market. At the heart of these programs lies the concept of incentive structure, which determines how effectively individuals engage with the opportunities presented to them.

If employees are not participating in an incentive program, it often indicates that they perceive the costs—whether in terms of effort, time, or resources—to outweigh the benefits.

In a free market, incentive structures are fundamental in guiding the behavior of individuals and businesses.

These structures are designed to align with the self-interest of participants, motivating them to make decisions that ultimately benefit the market as a whole.

Incentives often take the form of financial rewards, such as profits for businesses and wages for employees, which encourage them to produce goods and services efficiently. Consumers may also be incentivized by avoiding outcomes, such as purchasing insurance to avoid the pain of paying in full to replace damaged property.

In any case, incentives structures exist that motivate consumers to select the option that is most beneficial.

When it comes to well-being programming, the incentive structures that exist in most programs are often not aligned with the desired outcomes of the organization as a whole.

As a result, participant choices do not benefit the market (or in this case, the organization) as a whole. The wrong actions are incented and the outcome is a program with little to no improvement in overall employee well-being.

To optimize the right actions, organizations must strategically allocate their incentive resources similar to how market prices function. The allocation should reflect what employees would be willing to “pay” in terms of effort or commitment for the benefits they receive.

This threshold is critical; it represents the point at which the organization is not overspending on incentives, yet still provides sufficient motivation for participation. The participant must observe the strongest benefit to their interests exists when they participate in the incentivized action.

A key consideration when designing these programs is the distinction between high and low barrier to entry activities.

High barrier activities—those that require significant effort, skill, or time—should be priced or incentivized more attractively than low barrier activities. This strategy ensures that employees feel motivated to take on more challenging tasks, leading to true growth and development.

When individuals are rewarded for stepping out of their comfort zones, it builds a culture where challenging yourself is worth any risks you might be taking.

However, well-being administrators should be cautious when it comes to incentivizing low barrier activities.

Overpaying for these simpler tasks can lead to unrealistic employee expectations and fails to create meaningful habits. If employees come to expect substantial rewards for minimal effort, it can create a dependency on external motivation rather than fostering intrinsic motivation.

This could result in a stagnation of development, counteracting the very purpose of the incentive program.

We also see this occurring when it comes to incentivizing one-time actions as compared to repeated actions.

Organizations make the mistake of over incentivizing (or only incentivizing) one-time actions. This clearly models to the employee that there is a 1:1 work to payout ratio. In other words, they begin believing they must receive an award to perform that action.

Repeated actions begin to form habits, whether consciously or unconsciously, in the employee. They begin the process of engaging in an activity for the purpose of the reward, but the requirement to maintain consistency forms adaptations in their behavior.

These adaptations are more easily undone the shorter the required length of compliance with the incented behavior. Therefore, it becomes paramount to create incentive programs that incent repeated actions for manageable yet prolonged amounts of time.

To further bridge the participation gap between high and low barrier activities, well-being leaders might consider implementing prerequisite activities.

Bundling low, medium, and high barrier activities together and offering rewards upon the completion of all can effectively encourage participation across the board.

This bundling approach allows employees to gradually build their skills and confidence, making them more likely to engage in higher barrier activities in the future.

Incentive programs should be thoughtfully structured to reflect the principles of a free market, where the perceived value of participation drives engagement.

By carefully pricing activities, avoiding overspending on low barrier tasks, and utilizing prerequisite activities, your organization can create a much more effective incentive structure.

• Ensure that incentive programs are designed to align with the overall objectives of your organization by encouraging behaviors that truly advance employee well-being.

• It’s crucial to optimize the allocation of incentive resources, making sure they reflect the effort employees are willing to invest.

• Use techniques like prerequisite actions and bundled activity sets to bridge the participation gap between low and high-barrier activities.

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We’re committed to discussing challenges common to well-being leaders and presenting practical solutions that increase the wisdom of all well-being professionals.