Simplicity: the Reward game-changer?

February 25th 2023 Reward
Chris Andrew
By Chris Andrew

Personalisation. There’s a lot to recommend it. As McKinsey & Company have shown, companies who deliver excellent customised interactions with consumers – responding to individual preferences and creating targeted offerings - generate greater revenue. 

But how far should personalisation be applied to Reward? At first glance, it seems like a no-brainer. Who could dislike the idea of being able to create a fully bespoke package, which flexes to accommodate changing life stages and needs? 

Taking a second glance at personalised Reward, however, throws up more complicated questions. Here’s an example of one potential dilemma it may lead to for the individual: 

  • If I opt out of incentive plans – even partially - and convert that opportunity into fixed pay (albeit at a discount) to help pay my mortgage, will my boss think that I am a shirker? 

And here’s a dilemma that personalised Reward could create for the company: 

  • If I offer employees the opportunity to opt out of incentives – and they choose to do so – and then those incentives pay out well above target, will those employees be less engaged because they made a bad decision that cost them money?

The truth is that while the idea of personalised Reward is alluring, it brings consequences, some more hidden than others. So, does the promise of personalisation match the reality? Or (*whisper it*) might a simpler approach to Reward be more effective?

The potential pitfalls of personalisation

To answer those questions, the first thing to do is to look at the pitfalls of personalisation within the Reward arena. Some of these are functional. Offering multiple iterations of a Reward package is complex to organise, manage, and communicate, so it costs more to deliver. 

Others are ethical. If Reward is personalised, how much responsibility should a company assume for educating employees about the potential outcomes of their Reward choices? 

Some are simply difficult to quantify. Does the proliferation of Reward choices mean that employees attach more value to their Reward, or does it mean that they are more likely to see their choices as something to which they are entitled

The risk of entitlement is bound up in what is known – grandiosely – as the law of diminishing marginal utility. This is the concept that the more we have of something, the less satisfaction we derive from it. It’s an aspect of human nature that may mean that the more Reward choices we are given, the less appreciation we feel for them.

There aren’t easy answers to these questions – and with understanding and thoughtful communication none of these pitfalls are impossible to overcome. But it is important to recognise that personalisation makes Reward more complex. That makes it harder for employees both to understand and to navigate.                         

So, one of the questions we need to ask is: do the benefits of flexibility and choice outweigh the benefits of a simpler approach? 

Understanding the neuroscience of Reward

To explore this, it’s helpful to look at how our brains process the promise – and the reality – of Reward. At a very primal level, our decisions are governed by the desire to experience pleasure and avoid pain. 

At our most rational, we make decisions by balancing potential risks and potential rewards to decide what to do. But this takes brain processing power. The more factors we need to balance, the harder this becomes.

When employees are asked to make Reward choices, this involves selecting certain benefits, but ‘missing out’ on others. This pulls three tricky factors into play. 

The first is that demand on processing power: the effort it takes us to make our decisions. 

The second factor is that our amygdalas - the ancient part of the brain that’s responsible for detecting threats and producing fear – can respond to loss in ways that are outside our conscious awareness. In other words, while we may be rationally appreciative of the opportunity to make Reward choices, this feeling may be countered by the unpleasant sensation that this opportunity also includes having to reject other rewarding options. 

The third factor is that while we are making our Reward decisions, our colleagues are making different Reward decisions. This churns up more risk/ reward dilemmas. Are our colleagues making better decisions than we are? Are they choosing more valuable Reward options? 

And just to make everything more complicated: there are no straightforward answers when it comes to Reward options. Dental insurance may be invaluable if you develop an abscess and need a root canal. It’s less vital if all you require is a 10-minute check-up and floss. This means that Reward advice always comes loaded with caveats. Shares may go up or down. Your pension decisions are up to you. You may – or may not – need that health insurance. 

So, making all these decisions takes both time and confidence in one’s own financial decision-making. That goes a long way to explaining why companies may struggle to get employees to engage with Reward opportunities, like choosing benefits or opting into share schemes. 

Again, these issues aren’t insurmountable. But they are a compelling argument for why it may pay to make Reward simpler. 

Simplicity: the Reward game-changer

Simplicity doesn’t mean diluting the value of what you offer to employees. It simply means creating a Reward framework that is easy-to-understand, time-effective for colleagues to engage with, and which focuses clearly on the link between Reward and performance. 

Here’s an example of a simple Reward structure: 

  • All employees at your Job Level receive: Salary, pension, comprehensive health insurance and a wellbeing allowance. 
  • If you meet the following three targets, you will receive a bonus of £1000 and shares worth £500. 
  • For every five years of service, you will be entitled to a four-week sabbatical, during which you will receive full pay. 

This structure is equitable and transparent. It is adaptable, as the company can offer enhanced Rewards to reflect more complex roles and greater responsibilities. It directly links Reward opportunities with performance.

The simplicity of a structure like this relieves employees of the burden of financial decision making. It also allows the Reward team to spend less time communicating about how Reward works, and more time creating beneficial content for employees, like financial education around topics like pensions, debt, and shares. 

In a world of increasingly complex choices, choosing simplicity can be a game-changer. Are you ready to strip back? 

The Future of Reward: join the conversation

Reward professionals are facing the dilemma of choice, too! When it comes to considering the Future of Reward, we all know that there’s plenty of room for improvement. So, which way should we go? Join the conversation. Sign up for:

Neovation: Reward Forward, 28 February 2023, Corinthia Hotel London.

Chris Andrew
By Chris Andrew