• The modern workforce seeks personalised incentives and recognition for their efforts
• A study by Frankfurt School of Finance & Management on Amazon M Turk explores how designing individually tailored incentive schemes, using AI and machine learning, can boost employee performance 
• However, caution is warranted due to potential risks such as pay inequity and team dynamics, as highlighted by Professor Vogelsang     

As workplaces adapt to the dynamic demands of the modern era, the concept of incentivising employees has taken on new dimensions. Today’s workforce, particularly younger generations, craves meaningful recognition and personalised incentives that cater to their individual needs and preferences.  

In traditional incentive structures, the “one-size-fits-all” approach has been the standard practice for years. However, these generic methods, whilst certainly valued by some, often miss the mark with others whose individual needs and aspirations differ from their colleagues’.

For instance, whilst offering financial bonuses for hard work is certainly welcomed by some employees, those motivated by other rewards may feel less inclined to work towards achieving set goals, or may even feel less connected to the company as a result. 

Candy Kittens, a successful gourmet sweet company, provides a real-world example of how taking a different approach to incentivising staff can not only help to keep workers happy, but also fuel business success.

The company offers a range of attractive work perks, including unlimited holiday, hybrid working, flexible hours and monthly socials. These benefits are more tailored to what staff have identified to be important to them and their workplace satisfaction. As a result, Candy Kittens say they have cultivated a loyal and motivated workforce, enabling the company to scale up rapidly and achieve impressive turnover figures.

Sounds straightforward… however, while smaller companies like Candy Kittens may find it relatively easy to design flexible approaches due to their agility and fewer bureaucratic hurdles, implementing similar strategies in larger multinational corporations (MNCs) could present a more complex challenge.

Technology can play a crucial role in bridging this gap. By leveraging advanced data analytics, MNCs can streamline the management of employee rewards and benefits.

A good example is Unilever which has collaborated with uFlexReward, a smart tech tool that helps companies better manage the rewards they give to employees. The platform extracts data from various systems, including payroll, pension, and benefit supplier systems and about company bonuses, benefits, and rewards that employees usually receive to help managers understand their staff better, whilst allowing employees the freedom to choose their own rewards based on what matters most to them.     

Looking beyond one-size-fits-all

It’s also crucial for companies to also assess the bottom-line impact of individualised incentive schemes – which take significant investment of both time and finances to implement. Whilst your staff might be happier with more tailored incentive schemes, will your company benefit overall?

This is the question that Frankfurt School of Finance & Management, sought to answer. Research conducted in partnership with the University of Cologne, looks into the profound question: Do personalised incentive schemes truly enhance employees’ performance?  

Professor Timo Vogelsang and his team analysed staff activity, rewards and company performance by running two large-scale experiments with more than 12,000 participants on Amazon MTurk.

The first experiment surveyed participant demographics, personality traits, and social and economic preferences before performing a range of tasks.

The scenarios included tasks with a fixed wage, a piece-rate scheme, two target bonus schemes where the bonus could either be gained or lost based on performance, a competitive scheme where the bonus is dependent on comparisons to prior participant performance, and a social incentive scheme where a portion of money is donated to a social cause whenever the participant receives a bonus.

They found that while a bonus loss scheme generated an average increase in staff performance, taking the time to assign individuals to tasks with targeted incentive schemes, based on their characteristics and preferences yielded significantly higher results.

Specifically, while being under the bonus loss scheme increased performance by 23.9% compared to the control group, targeted assignment raised performance by 29.3%.   

Furthermore, their follow-up study found that some sections of the workforce perform better under some incentive schemes than others. Much of this stems from various factors associated with gender and generational dynamics in the workplace. For example, research has found that women are typically more risk averse in their professional lives, making them less likely to engage with incentive structures they perceive as high-risk. Additionally, women’s inclination toward cooperation over competition drives them away from schemes emphasising individual performance.

Reinforcing the need to take personal priorities into account further, Professor Vogelsang’s study saw that workers who had been identified as liking to help others were found to prefer social incentives, illustrating how the value of reward can change depending on who the reward is being given to. Money is not everything to all people.

Moving with the times

This finding falls in line with a study conducted by Red Letter Days Corporate, which shows that non-monetary rewards are proving to be more effective with staff than cash-based privileges. Interestingly, 63% of the top-performing companies in the UK have reported higher productivity levels with non-cash incentive programs.

A Deloitte 2018 Global Human Capital Trends Survey provides a similar compelling insight into this current realm of incentive programs i.e. “employees are looking for more personalised, agile, and holistic employee rewards.”    

In a world where it is increasingly important for employees to feel a connection to their work beyond their salary, introducing tailored incentive schemes to suit individual workers’ goals and preferences may not only address potential issues with staff satisfaction but also in loyalty and connectivity – especially when so many workplaces operate on a hybrid basis or operate independently, like in the gig economy.

Professor Vogelsang suggests, “The rise of alternative work arrangements, especially the gig economy, opens a particularly suitable field for the assignment of different schemes to different workers due to the independent work environment typical for gig work.”

Are there any risks?  

So, the research shows it works. But how employers ensure that such personalised schemes can be valued, appreciated, and benefitted from equally? The beauty of a one-size-fits-all approach is that is reduces the risk of bias – all staff follow the same scheme and gain the same entitlements. When schemes begin to diversify, there is a risk that some employees may perceive others to be getting more.

It is also important to recognise that while personalised incentives offer benefits, there are limits to its effectiveness dependent on the scenario such schemes are introduced to. For example, Professor Vogelsang’s team caution against using individual characteristics to assign targeted incentive schemes within a team, citing concerns about potential pay inequity and adverse effects.       

A good example of how adverse those effects can be found in Whole Foods’ profit-sharing program – a system by which store performance directly impacted employee bonuses. While this aimed to motivate employees, it resulted in some unintended consequences.  

Certain departments, like prepared foods, could significantly impact store profits. This could lead to situations where prepared foods employees earned substantially more than cashiers or stockers, even if the cashiers and stockers were also performing well. This created a sense of inequity among some employees and strained team dynamics.

As a consequence, a lawsuit was filed by former managers.

However, Professor Vogelsang’s study shows how technology here too can help. By harnessing data analytics, employers can sift through vast amounts of employee data more efficiently and effectively, keeping a better eye on how benefits are assigned and used. 

Unilever’s approach does this too, both allowing employers to also keep an eye on how much the company is spending, and ensuring reward schemes can be kept balanced and fair regardless of customisation.

In essence, while the individualisation of incentive schemes holds promise, careful consideration of its potential implications, particularly in ensuring equity and avoiding adverse effects, remains paramount in fostering a fair and productive work environment. 

By, Gowri Ramesh

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