Our presentation from the 2017 Total Rewards session that showed how we used behavioral science to change the incentive and total reward framework for Lilly.
5. We wanted to use the latest
behavioral science
to drive the
process
6. We asked 4 Questions
1. What was the strategic intent
2. How did it impact motivation
3. How was behavior impacted
4. Cost of the program
7. The Four Drive Model of
Employee Motivation
Lawrence & Nohria, 2002
8. Acquire & Achieve
Driven to acquire things,
money, status, rewards and
resources
Bond & Belong
Driven to create positive
relationships, engage with others
and “fit in”
Create & Challenge
Driven to create, improve,
master, learn and overcome
challenges
Define & Defend
Driven to define our beliefs and
purpose and defend our status,
ideas, relationships and “tribes”
4-Drive Model
12. Acquire & Achieve
Driven to acquire things,
money, status, rewards and
resources
Bond & Belong
Driven to create positive
relationships, engage with
others and “fit in”
Create & Challenge
Driven to create, improve,
master, learn and overcome
challenges
Define & Defend
Driven to define our purpose and
defend our status, ideas,
relationships and OUR “tribes”
4-Drive Model
13. What we found out
Mostly focused on satisfying the drive to Acquire & Achieve
Inhibiting drive to Bond & Belong and patient focus
Not leveraging behavioral principles:
• Hedonic Motivation
• Perceived unfairness
• Idiosyncratic Fit
Not leveraging communication aspects:
• Framing
• Social proof
• Cognitive load
18. Behavioral Economic Principles
Hedonic motivation – hedonic (luxurious) awards are more
motivating than equivalent cash or other rewards. These types of
awards do not result in “indulgence guilt”, fulfill our desire for
pleasure, and are perceived as more valuable than their
economic cost.
19. Behavioral Economic Principles
Perceived Fairness – people are highly influenced by a sense of
fairness (or really perceived lack of fairness). This impacts both
behavior and attitude.
“Fairness seems a bit like air – its absence is a lot more noticeable than its
presence.”
Mathew Liebermann, PhD
Research: Ultimatum Game – 2 players split $10. One person makes offer
of split, the other decides yes or no to accept.
How much do you usually have offer for the 2nd person to accept?
≥$3
21. Behavioral Economic Principles
Idiosyncratic fit – When we feel we have a unique advantage in a
program or that a program is tailored specifically to us we are more
motivated. This sense of unique fit to us fuels our desire to perform –
even if the requirements to achieve success are more difficult.
Low cost entry fee
MeanJoiningLikelihood(0-10)
6
5
4
3
2
High cost entry fee
Likelihood of Joining Credit Card Program
Ran Kivetz
22. Goal gradient theory – Goal motivation increases as people move
closer to target. The closer you get to the target, the greater the
motivation is to achieve it.
Behavioral Economic Principles
Research: Buy 10 coffees – get one free!
10 coffee punch card
Average 15.6 days
12 coffee punch card
with 2 pre-punched
Average 12.7 days
Ran Kivetz, 2006
Illusionary goal progress – Goal motivation increases even when
the progress towards the goal is illusionary.
Buy 10 get 1 free
FREE
X
X
Buy 12 get 1 free
FREE
23. How we applied
Incentive Design
Team based incentive
Focus on fairness
Customize to individuals
Anchor desired performance
Enhance with hedonic motivators
25. Behavioral Economic Principles
Percent that registered before deadline
Framing – People react differently to a particular choice or option
based on how it is presented (e.g., loss or gain, certainty or uncertain,
etc…).
Penalty
93%
67%
Discount
Research: Framing of early registration discount as a penalty or discount?
26. Behavioral Economic Principles
Social proof (the bandwagon effect) – Tendency of people to
assume the actions of others reflect the correct behavior in a given
situation. People are more likely to take action or behave in a
specific manner if they see others doing the same thing.
A
B
C
Research: Which line matches the test line?
75% of participants
conformed to the majority
view at least once, even
when it was clearly incorrect.
Solomon Asch
Test Line
27. Behavioral Science Principles
Cognitive Overload – Our short-term memory can only process a
limited amount of information. Too much information in too short of
period results in information being discarded and memory/processing
shutting down.
Research: How information is presented can have significant impact on
comprehension, processing and retention.
Before – 32% retention
of key data items
After – 67% retention
of key data items
28. How we applied
Incentive Communication
Used campaign approach
Graphically enhanced to clarify and drive behaviors
Framing of communications accordingly
Normative vs. Descriptive
Present vs. Future
Use testimonials/numbers to drive social proof
Communicated desired performance to anchor it in
29. How we are using behavioral science today?
Rewards & Recognition
Fleet Safety
Patient Adherence
Manager Training
Sales Operations
Kurt
Welcome
James and I are excited to be here to talk about how James company, Eli Lilly transformed its total rewards program using behavioral science principles
We will start with some of the background to set the stage
Then we’ll quickly talk about the process that we used
From there our journey will take us into an examination of some of the behavioral science principles and how they were incorporated
And we will wrap up with a quick review of how Lilly has expanded the role of Behavioral Science today
James:
Back story on Lilly’s strategy changing
James:
Overview what the key strategic drivers were
James:
Discussion on how R&R had not kept pace
James:
Talk about bringing in Kurt and BIW
Kurt w/James color commentary:
We started the process by doing what we call a behavioral audit which is designed to understand the underlying root drivers of motivation and behavior
This goes beyond survey and questions and included in-depth interviews with custom questions and probes designed to peel back the real drivers
We needed to do this since because of the say/do problem. You all know about the say/do problem, right? NO?
The say-do problem is the fact that we often answer surveys or questions one way, but behave in a very different manner. This is particularly true when we think or answer questions about what motivates us.
There is a multitude of psychological reasons for this – one major one is we don’t really know ourselves and our motivators as well as we think we do
Anyway, back to the audit. We analyzed information and interviewed key stakeholders and sales people throughout the company
We asked 4 key questions
What was the strategic intent
How did it impact motivation
How was behavior impacted
Cost of the program - [James – add in comment here]
Kurt:
We used a number of tools to analyze and assess the information
One of the key tools we used was a model of motivation that was originally developed in 2002 by Harvard professors Lawrence and Nohria, I believe this model is the most comprehensive model of employee motivation to date.
Kurt:
So let’s look a little closer at each of the different drives
Note – that these are different than Lawrence & Nohria’s original – we modified them based on our own research and work with organizations.
Kurt
Kurt:
So let’s look a little closer at each of the different drives
Note – that these are different than Lawrence & Nohria’s original – we modified them based on our own research and work with organizations.
James with color commentary by Kurt
So what did we find with the audit?
James:
This quantification of information and behavioral drivers led us to work closely with Sr. Management to revamp our R&R framework
James:
First – on our incentive plan…
Kurt with color commentary by James:
We worked well beyond just the incentive plan.
It was important for us to ensure that we were satisfying each of the four drives as much as we could.
We know that the IC plan by itself was not enough to do this. Let me repeat that – the IC plan could not do this on its own.
We looked at a R&R Framework – using different methodologies to tap into the different drives
As you can see the IC satisfied
Kurt with color commentary by James:
Kurt with color commentary by James:
Luxurious rewards provide higher motivation – we often feel guilty for spending money on hedonic or luxurious things – but incentive rewards remove that guilt. Also people tend to perceive the value of those rewards as higher than they actually are. Goods also tend to make more of an impression in our memories than cash – providing greater recall and motivation. In US – we tend to not discuss money – but we will discuss (brag) about winning trips, merchandise, etc (Trophy effect).
Kurt with color commentary by James:
Changes to plans that decrease the perception of fairness can have significant negative impact on performance and overall plan satisfaction.
Incentive plans need to ensure that differences between territories or roles be explained and that people understand why they are different.
Reward & recognition implications:
Compare new plan to last year’s plan
My payout compared to peers (perceived fairness)
Relativity (internal equity)
we judge a thing based on how we think it compares to others
Ultimatum Game: the first player (the proposer) receives a sum of money ($10) and proposes how to divide the sum between the proposer and the other player. The second player (the responder) chooses to either accept or reject this proposal. If the second player accepts, the money is split according to the proposal. If the second player rejects, neither player receives any money. The game is typically played only once so that reciprocation is not an issue.
Responder usually rejects offer unless it is over $3 - throwing away money just because they feel slighted and not a fair distribution of funds.
See what happens when researchers provide two different rewards to monkeys doing the same thing.
First monkey happy with cucumber to begin
2nd monkey gets grape – 1st monkey sees this
1st monkey now not happy with cucumber when still gets this as reward
Kurt with color commentary by James:
Research – loyalty program for credit card – looked at the likelihood of joining the program – four conditions: 1) low entry fee and double your points when use the card at only YOUR specific grocery / gas chains, 2) low entry fee and double your points when use the card at only ANY grocery / gas chains, 3) high entry fee and double your points when use the card at only YOUR specific grocery / gas chains and 4: high entry fee and double your points when use the card at only ANY grocery / gas chains. Contrary to what you would think – more likely to join when the double points are limited to your specific stores AND even more likely to join if the fee is higher. Irrational belief that the program is customized and limited to YOU.
Study done with a coffee shop. Two scenarios each focused on buy 10 coffees get 1 free. However, one card had 10 spots on it, one had 12 spots (with 2 pre-filled). The research found that the cards that had the two sections already filled in were turned in faster (15.6 days versus 12.7 days).
Over 10,000 cups of coffee were redeemed