Behavioural Economics in HRM: Nudging Employee Performance and Engagement

Behavioural Economics, Human Resource Management, Nudging, Employee Performance, Employee Engagement, Choice Architecture, Workplace Behaviour, Behavioural Insights.

The ideas of behavioural economics can provide useful insights into the behaviour of employees in the organisation, as well as their reactions to the workplace and the change of their behaviour. The current research paper will explore the implementation of behavioural economics in the area of Human Resource Management (HRM) and how nudging can be used to enhance employee performance and engagement. It considers how choices are presented, goals are set, feedback systems are applied, recognition systems are created, and how work defaults work can all be changed in a way that helps employees to adopt desired behaviours, using innovative choice architecture and non-conventional incentives, not just monetary incentives and formal controls. It highlights the role of bounded rationality, social influence, loss aversion and framing in explaining employee choices and performance at work as well as the role of present bias and intrinsic motivation. The paper next looks at how behavioural insights could be applied in HR areas like performance management, learning and development, employee wellbeing, attendance, team building and organisational communication. Recent research indicates that, when implemented correctly, nudges can help people to reach their goals: to be engaged, to be pro-active, to be performing. And that nudges can have different effects, contingent on an organisation's context and its employees' characteristics. Ethical issues are also considered such as employee autonomy, transparency, fairness, privacy and possible manipulative behavioural interventions. The study suggests that HRM can start playing an increasing role as a behavioural choice architect, by creating conducive work settings which make the desirable behaviour by employees easier and more sustainable. In general, the paper argues that the field of behavioural economics is a complementary approach to HRM and suggests a set of evidence-based, transparent and ethically responsible nudging techniques for sustainable employee and organizational outcomes.