Incentivising Training to Up Productivity - IEDP
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Incentivising Training to Up Productivity

The importance of incorporating psychological techniques into the design of effective incentive programs


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In a recent speech Confederation of British Industry, Director General, John Cridland said that “Improving skills is one of the best ways to boost our productivity and raise individual living standards. In fact, business see low skill levels as the number one workforce threat to competitiveness.” Similarly in the U.S. there are rising worries that workers are falling behind better-educated and better-trained employees in Asia and Europe.

The question then arises: who is going to drive up skills? Government education policies have a role to play, as do larger companies with significant training budgets, but in the end a lot comes down to individuals. So how can people be encouraged to build their own skills and to join educational and training programs?

New research from the University of California, Berkeley’s Haas School of Business argues that simple monetary incentives are an effective option for employers. A one-time outcome-based financial incentive, if based on proven psychological techniques, can help workers embrace a long-term and sustained interest in training, says Teck-Hua Ho, the William Halford Jr. Family professor of marketing at Berkeley-Haas and the Tan Chin Tuan Centennial Professor at the National University of Singapore.

“In a constantly changing work environment, workers must commit and continue to participate in training in order to stay relevant and competitively employable,” says Ho in a study, co-written with Catherine Yeung, an Associate Professor in the Department of Marketing at the National University of Singapore, which presents important options for employers and government.

In his speech John Cridland spoke of the trend towards higher skills, with half of all jobs requiring “level 4 higher skills” by 2020, but warned that “What we are seeing – is a widening gap between the ‘haves’ and ‘have-nots’ on skills.” What is the case in Britain, the U.S. and elsewhere is that people need to up-grade their skills to keep pace with the fast moving technological innovations that are changing the workplace from the factory floor, to the hospital ward, to the City office.

Cridland said “We’re challenging employers to go beyond the easy rhetoric of people being their ‘greatest asset’ and take action to up-skill their workforce.” While this is right for large corporations, large sections of the economy are in no position to take up this challenge. In many cases, small- and medium-sized businesses must look to outside organizations or the government to provide training and must rely on employees’ self-motivation to actively participate in it.

The problem is, according to Ho and Yeung, that workers’ participation in training is likely to be low because courses are undertaken at their own discretion, potentially leaving them and their employers out-of-touch with the needs of the market.

Through a field study, conducted in collaboration with a non-profit vocational centre, Ho and Yeung found that workers could be convinced to commit to long-term training based on incentives that are presented as a reimbursement to absorb out-of-pocket expenses instead of as a cash reward, in combination with a requirement to make a non-binding commitment to take specific courses of their choosing.

The study involved 4,000 workers, some of whom were offered a one-time cash incentive of $60 to take two, two-day courses, each of which costs $30, within four months. The $60 incentive was either presented to the workers as a reimbursement to absorb the out-of-pocket expenses of taking the training courses, or as a cash reward for taking them.

Regardless of how the incentive was presented, workers only received it if they completed both courses within four months. Some of the workers were also asked to make a non-binding commitment to undertake training by specifying which two courses to take and when to take them.

The study found that workers who received a one-time incentive on average completed six times more courses than those who did not. Tracking these workers for another nine-and-a-half months, in which no incentives were offered, showed that only those who had received the one-time incentive as a reimbursement to absorb out-of-pocket expenses and made a non-binding commitment to specific courses continued to stick with the training program.

Ho and Yeung point out that their work was based on known studies on the use of incentives to influence behaviour, such as programs used to encourage people to exercise, lose weight, and, in developing countries, to send their children to school. “While managers and policy makers know that incentives can motivate workers, many are not aware of the importance of incorporating psychological techniques into the design of an effective incentive program,” Ho and Yeung wrote.


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