Do you use nudges in your organization? You probably do, even if you are not aware of them. If you are not aware of the nudges that your organization is providing, you also may not be nudging in a strategic direction. A recent business book has opened my eyes to the strategic use of nudges in various human resources functions, both for the betterment of employees and the organization.
The contention of the book Nudge – Improving Decisions About Health, Wealth and Happiness, by Richard H. Thaler and Cass R. Sunstein, is that there is no such thing as a total neutrality in the construction of choice architecture and that it is hard to avoid influencing people when presenting choices. In this brief blog, I’d like to highlight a few areas in which human resource functions can exercise what the authors define as libertarian paternalism.
First, in brief, the author’s definition of libertarian paternalism, as outlined on page 5, is the combination of free choice and the effort to try to influence people to improve their lives so that they will be better off (as defined by themselves). At the core of this definition is the idea that in certain situations there are “Nudgers”, who are setting up the choices available and who may (hopefully) have a certain degree of knowledge and expertise, and that there are “Nudgees”, who will sometimes have to make difficult, complex choices with incomplete information and varying levels of knowledge, cognitive abilities and self-control.
As an employer, more specifically as the team responsible for human resources functions, you are in the position of a Nudger and employees are in the position of Nudgee in the areas of employee health, benefits and retirement planning. Detailed examples, backed up by case studies and evidence are illustrated by the authors. Below are several simplified summaries and other examples.
Nudges in employee health
Almost everyone, if asked would agree that they want to eat healthier, exercise more and keep off or prevent excess weight gain. However, most people, while they acknowledge that the long-term outcome is better, will still make many choices in the short run that do not align with these goals. One example of this is from an experiment at Google. Googlers are used to getting free food, including unlimited candies! Google, recognizing that this might not be healthy for employees in the long run, attempted to change this without limiting employee choice. Taking away the candy would have been a paternalistic solution. Instead they nudged employees to make healthier choices by placing candies in opaque containers while placing healthier snacks in more visible containers. It worked! According to a Washington Post 2013 article, Google crunches data on munching in office, the most successful example was in the New York office: during a period of seven weeks, a staff of 2,000 consumed 3.1 million fewer calories from M&Ms. The conscious structuring of choice, rather than restriction of choice, can make a significant impact to employee wellness.
Nudges in employee benefit plans
The nudges involved in benefits plans will completely depend on your unique structure. However, there are two recent trends in benefits – the push towards flexible plans and the limitation of drug coverage to generic drugs that involve nudges. Often flexible plans will have a health care spending account (HCSA) that has a use it or lose it portion. Usually, the way that the plans are structured, the only one benefiting, if the employee does not use the HCSA, is the insurance company. Assuming that you really do want your employees healthier and that you want them to take full use of the HCSA, companies can create nudges to promote the spending of the account in a variety of ways, including; ensuring that default annual renewal options default to the previous year’s settings rather than defaulting to an original setting, creating easy access to healthcare professionals on site and having structured reminders and an easy process for submitting HCSA claims.
Another easy default to help stretch employee and employer benefit plan dollars is to have the default setting for prescription drugs set to generic. The employee and/or their doctor can still choose (with written prescription) to obtain and have the name brand drug paid for in the benefit plan, but if the name brand drug is not specified, only the generic prescription is covered. This helps employees to be aware of the cost of the drugs they are using and to choose generic by default. Nudges in employee benefit plans can encourage benefits usage in a cost effective direction.
Nudges in employee retirement plans and contributions
Many employers offer matching employee-employer contribution plans or other methods to encourage employees to save enough for retirement. Thaler and Sunstein discuss in detail options, choice structures, education plans, default choice structures and feedback loops to encourage employee saving. Saving for retirement and choosing investment plans and funds are some of the most complex choices that people have to make. Sometime individuals are overwhelmed by the amount and complexity of choices available and they don’t choose or make poor choices (as defined by themselves). The authors argue convincingly to have strong default options in place that work to the benefit of those employees. They also suggest options such as a “save more tomorrow” plan in which employees can opt in to have a portion of future raises automatically be directed to retirement savings. Nudges in employee contribution and retirement plans can encourage employees to save more and to invest more effectively for retirement.
Human Resources professionals – Benevolent choice architects
In conclusion, if you are the person responsible for human resources functions in your organization, whether you like it or not, you are a choice architect for your employees. Hopefully, as a human resources professional balancing the best interests of your organization and employees, you will work to “preserve freedom of choice, while also nudging people in direction that will improve their lives” (Thaler and Sunstein, 255). Maybe I should consider signing my name with some additional acronyms, CHRL-BCA!
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