Joe Gladstone: Why HR professionals need behavioural economics


Understanding what motivates employees is fundamental to what an HR professional does. Yet, for decades, they have used the same superficial frameworks to model ways that staff evaluate information and make decisions, ignoring decades of evolving scientific research.

The recent surge of interest in behavioural economics , which draws insights from psychology and economics to help explain how people make choices, means that the old ways of doing things in HR are over.

Employers, such as Google, are gobbling up expertise in this area to apply to their HR department, or ‘people operations’, as it prefers to call it. This is because the field has produced remarkable insights into how to effectively design and communicate employee benefits plans and motivation schemes .

Motivate and retain staff

Examples include how to motivate and retain employees without raising costs. Economics tells us that staff put in more effort only if they are compensated with higher wages . Surprisingly though, financial incentives can actually undermine personal motivation. Rewards are powerful when they make employees feel valued, and give them a sense of progression.

Another example is how to optimise the communication of employee benefits . ‘Choice architecture’ (how various options are framed, ordered, and described) is an effective technique to engage employees. For example, having too many options can create decision-making paralysis. HR and benefits professionals should limit them to make the choices they offer meaningful and differentiated, not overwhelming.

Stop wasting time and money on employee research

Surveys and interviews, widely used by HR and benefits professionals to decide which benefits to offer, are premised on staff being consciously aware of what they want. This is rarely the case. Only a controlled experiment can offer adequate answers to many of these questions.

As results from behavioural economics continue to spread out of dusty journals and into the public sphere, HR professionals need to be at the forefront of engaging with this new science or else risk being left behind. 

First, they need to realise that they are not intuitive psychologists, and that years of experience rarely trump insight gained from thorough experimentation. Second, they should also read a range of useful books. A particular favourite is Thinking Fast and Slow by Nobel Laureate, Daniel Kahneman.

Recognise when help is required

Third, they need to recognise when they need external help. A cost-efficient method can be to engage industry specialists or academics to offer training sessions and/or to consult on key questions.

Organisations have spent decades meticulously studying customer behaviour. It’s time they applied the same energy to understanding their employees. People operations departments are just the beginning; the new race is to understand human behaviour. 

Joe Gladstone is an academic researcher and consultant based at the University of Cambridge