Show me the money - The behavioural science of reward
Published: March 2015
This report provides an overview of relevant research in behavioural science for those who have a responsibility for, or an interest in, employee reward and identifies how these can be applied to make pay and benefit practices more effective.
It is for all those people management and public policy professionals who have a role, or interest, in the design and implementation of pay and benefit systems in organisations.
Base pay, pay structures and the market
We explore the implications of individuals’ subjective valuing of rewards, and their approach to equity, for the setting of pay rates. We examine how individuals estimate their own worth, and how they respond to the prospect of progression in pay scales (or barriers to it).
We look at how individuals respond to incentives of various kinds. We consider the different effects on people’s behaviour of financial and non-financial incentives, deferred rewards and team or organisation-wide incentives.
Pensions and benefits
We examine employee responses to pensions and benefits as rewards. We particularly focus on how cognitive biases and rules of thumb affect behaviour in relation to pensions. We also consider how people respond to choice in flexible benefits and the withdrawal of benefits.
We look first at how cognitive biases affect executives’ responses to reward packages of different kinds and how this shapes their behaviour, for better or worse. We then examine how the decisions of remuneration committees can themselves be influenced by biases and decision-making heuristics.