People make decisions constantly. Do I want this, or that? Stay, or go? Vanilla, or chocolate?
Behavioral science is the lens through which we seek to understand why people do what they do—and, by extension, how to motivate them towards a particular action. This concept is traditionally applied in the business world through bonuses or other cash-based incentive structures. The idea being aligning a company goal with a perceived payout will elevate an employee’s performance. Similarly, some businesses have shifted to point rewards programs in order to maximize and direct the potential of their workforce—and it is working.
Some years ago, Goodyear Tires ran an experiment to determine which incentive system to use. One group of salespeople was selected to receive monetary rewards while a second group was enrolled in a points program with a selection of merchandise and travel rewards. Each cohort would receive a cash or point payout for every increment of 12 tires sold. At the end of the six-month trial run, the points group outperformed the monetary group by 46% and generated an ROI of $1.31 for every dollar invested by Goodyear into the program. In contrast, the monetary group returned just $0.80 per dollar invested.
So, what’s the difference? What makes point rewards so much more effective at changing behavior than its cash alternative? Recently, the Incentive Research Foundation (IRF) released one of the most comprehensive studies to-date regarding the psychology of employee point rewards. As part of the study, the IRF surveyed 1,018 workers across a variety of industries to determine how participating in points programs affects employee engagement, intrinsic motivation, and identification with the organization.
The survey finds that for each individual statement and on average across all statements, respondents that work for organizations that use a points reward program (versus no points program) report:
- Higher intrinsic motivation
- Higher organizational identification
- Greater satisfaction with their rewards and recognition
- Greater preference for working for an organization with a points reward program
Incentive experts and behavioral scientists offer several insights into why point reward programs have such an impact on workers’ preferences and motivations.
More Than a Transaction
Overall, points programs appear to reach employees beyond a transactional level. For the most part, point earners consider rewards as more of a gift of appreciation than a part of their compensation. More than 80% of surveyed respondents agreed with the statements “It is a treat when I receive points from work” and “It feels like I am receiving a gift when I receive redeemable points from work.”
Experts point to the wide scope of reward options and the numerous ways organizations can leverage point programs to explain this trend. The novelty of point programs overcomes people’s natural tendency towards habituation, which erodes pleasure and increases entitlement over time if left unchecked.
The Anticipation of Reward
Point reward programs evoke a greater sense of experiential progress through consistent positive feedback. In other words, the end reward is less important than the recognition or the points themselves.
Existing scientific consensus supports this notion as well. Speaking to the “anticipation of reward”, Stanford neurobiologist Robert Sapolsky explains “Once reward contingencies are learned, dopamine is less about reward than about its anticipation… the pleasure is in the anticipation of reward, and the reward itself is nearly an afterthought”.
Saving and Redeeming Points
79% of survey respondents say they like to save points for a big purchase. On the other hand, 58% say they prefer to make smaller purchases more often. Nearly half (49%), agreed with both statements.
Point reward programs allow participants to choose their own reward goals. Whether it’s saving for a vacation package or grabbing a free pizza coupon before the weekend, program participants have the option to plan ahead towards the most desired outcome.
The psychological advantages of an employee point rewards system are clear: Point-based incentives lead to greater outcomes in motivation, organizational identification, and reward satisfaction across the board. In addition, the unique compounding benefits provided by the novelty, flexibility, and universality of point rewards offers a long-term incentive solution that can grow alongside an organization.
Money may make the world go around, but points are the best motivator for your workforce.