Annual Bonus: £5,000 or a chance of winning £100,000?

At our Hero Academy event last week, Dr Claire El Mouden gave an intriguing talk on KPIs and annual bonuses, and how they are often poorly planned/executed.

She spoke a lot about rational choice theory, as well as the importance of timing with respect to rewarding employees. 

For me, the take-home was that the perceived value of financial incentives never really equals the actual value. One suggestion Claire makes is to make your financial rewards appear more valuable. For example:

Play upon the fear of loss phenomenon.

People hate losing stuff, more than they like winning stuff. Consider telling your employees they have X bonus already, simply perform Y to keep it.

Repackage financial incentives as a big prize.

Rather than giving all 50 of your employees £5,000 each for performing X behaviour, enter the 50 employees into a lottery for £100,000. This costs your £3,000 less per employee (saving you £150,000 in the process).

Consider gifts over money

There is a large body of research that suggests people value gifts more than cash. Offer employees a long-weekend abroad (~£2,000) rather than £5,000 in cash.