How to make employees your allies in saving company money

The distinction between “employers” and “employees” often divides companies into artificial factions with conflicting interests. When employees think they’re at odds with the business, spending, productivity, retention, and other issues of motivation will create friction. Employees will spend the maximum their budgets allow.

Employer-employee reciprocity can solve this dilemma and heal the artificial barriers that make employees feel alienated and unaccountable to employers. Let’s break down the problem and discuss how to solve it.

The agency problem

Whenever spending is at the discretion of employees, there’s an agency problem – a situation where employees are expected to act in the best interest of the employer. In many cases, employees are asked to sacrifice their short-term interests to the company. The classic example is travel, where employees want the best airline seats and hotels, but the company wants to minimize costs.

Agency problems arise daily. Say a company pays an employee $50 per hour. Effectively, the employee “spends” that $50 through his or her actions, habits and behaviors.

An employee earning $50 per hour could cost the company $200 per hour because he or she wastes time and distracts coworkers. Conversely, he or she might net the company $1,000 per hour because he or she is so talented at his or her role. Every action we take in business has a positive or negative value.

The spending threshold

When you create a budget for a business trip or marketing campaign, employees see that as a target–not a choice with a positive or negative value. If the company already budgeted $1,000 for the trip, why try to spend only $800? Similarly, if you tell a salesperson to make 50 calls per day, why would he make the 51st call? The agency problem can improve or worsen depending the variables and conventions we feed into each choice.

Consider dessert: When you finish a meal and see the dessert menu, what stops you from ordering the molten lava cake? For many people, dessert is part of the meal – they’ve budgeted for it. They know it’s not great for their body (a.k.a., the company), but what will one cake do in the grand scheme of things?

People make that justification repeatedly over long time periods because they can’t attribute the consequences (weight gain) to any single decision. Like the convention of dessert, budgets create norms. We feel good about spending the budget, even if there’s opportunities to save. The problem is not laziness, greed or entitlement – it’s norms that make the “wrong” thing feel “right.”

Reciprocity and incentives

Employers leave their employees vulnerable to doing the “wrong” thing. The company pays salaries, for which employees are expected to do things assigned by their supervisors. Employees tend to meet the minimum threshold, yet employers wish employees would put in a 120 percent–at least. There’s a gap between what employees are contractually bound to do and what employers want them to do.

Expectations without rewards are demotivating. Expectations with rewards are reciprocal. If you master that concept, you can change any negative cultural pattern, including overspending.

Sales commissions demonstrate this principle well. The commission has nothing to say about how many calls to make or emails to send per day. It encourages salespeople to make as much revenue as possible. The more they bring in, the more they take home.

Designing choices

The essence of employer-employee reciprocity is to design choices in which an individual’s gain or loss a) aligns with the company’s gain or loss, and b) is objective and fair. Well-designed choices optimize the likelihood of the ‘right choice.’

Let’s apply this concept to a B2B marketer. What’s his “real” job? Is it to spend the marketing budget provided? Or, is it to generate a certain number of inbound leads per x dollars spent?

Reciprocity works magic once there’s unlimited upside. A B2B employer could say, I expect 10 leads for every $2,000 spent. If you get 15 leads or more at that spend, you get a $750 bonus in some form – cash, or maybe points convertible to cash.

Notice that I DON’T recommend virtual badges or the Monopoly money that lack financial value (and are frequently used in classical gamification). Points are useful because they differentiate incentives from salaries, which employees feel entitled to.

Fix your choices and norms

Great choice design introduces reciprocity and motivates employees to act in the company’s interest – because the employer and employees’ interests are one in the same.

If your employees habitually act against the company’s interest, you probably don’t have “bad” employees. More likely, the company has, inadvertently, created choices that encourage employees to max out budgets, put in the minimum required effort, and take other actions that hurt the company.

Create better choices, and you’ll create better norms. You’ll heal that employer-employee gap that has become so detrimental to corporate life.

Dan Ruch is founder and CEO of Rocketrip.