In case you missed it, the Incentive Research Foundation released academic research last month exploring Social Exchange Theory (SET). This research prompted us to think about how recognition programs and tangible rewards shape our behavior and perceptions of jobs, organizations, and people around us such as colleagues, managers, and customers.

To better understand how SET applies to recognition programs, we’ll be explaining what Social Exchange Theory is, an example of it in action, and outline the pros and possible pitfalls of using SET to help guide your recognition programs.

Understanding Social Exchange Theory

Social Exchange Theory is the idea that a rewarding interaction is more likely to be repeated than an interaction that evokes consequences. This theory suggests we can predict whether an interaction will be repeated. If the reward for an interaction exceeds the consequences, then the interaction is likely to continue. In other words, SET suggests that people will stay in relationships or with organizations if they believe the benefits (recognition and rewards) of doing so exceed the costs (consequences).

According to this theory, the behavior of any individual in any interaction can be predicted using a cost-benefit analysis formula:

Behavior = Rewards of interaction – consequences of interaction

Rewards can come in many forms: company-wide recognition, gifts, and even subtle everyday gestures like a smile, nod, or pat on the back. Consequences also come in many forms, from losing valuable customers or being dismissed from your role to subtle gestures like a raised eyebrow or a frown.

Example of SET in action

Social Exchange Theory is regularly exemplified in sales interactions. Let’s say you’re meeting with a client to pitch them on your product or service. If your presentation goes well and the person agrees to do business with you, you have gained a reward and are likely to replicate the interaction by trying to make them repeat customers.

On the other hand, if you pitch your product or service to another person and they say, “No way!” Then you are met with consequences that will probably cause you to shy away from repeating this type of interaction with the same person in the future.

Pros of SET

Social Exchange Theory is “viewed as one of the most influential theories for understanding behavior in the workplace” (IRF). Hence, it is central to the efficacy of recognition, incentives, and rewards programs. SET is typically leveraged in the workplace through non-cash recognition programs where the rewards are quality products and the program extends to a majority of the employees.

For this form of recognition to be effective, it should include tangible rewards—such as gifts and travel. When combined with other elements of reward programs including competitive pay, feedback, career planning, and autonomy, the already significant impacts of recognition on performance, engagement, and retention, are greatly amplified.

Possible pitfalls of SET

Many critique SET for assuming that people always make rational decisions, and point out that it fails to capture the power that emotions play in people’s professional lives and in our interactions with others. This theory also undercuts the power of social structures, such as company culture or hierarchy, which unconsciously shapes our perception of an organization and our experiences within it.

Additionally, according to the IRF’s academic research, “Organizations that hope to leverage SET through social recognition programs that do not include some element of tangible reward risk creating the impression that recognition is insincere and empty.”

​​Social Exchange Theory is a model for predicting interactions between people and individual behaviors based on our perception of rewards and consequences. As organizations enter a new era of remote and hybrid work, the design of recognition programs is especially essential in keeping colleagues, managers, and customers connected within a culture of recognition and appreciation.

Rewarding people for positive interactions and behaviors doesn’t have to be hard; let our team of experts provide gifting solutions to help you build a culture of recognition and appreciation within your organization. Whether you’re looking to appreciate employees, celebrate repeat customers, or motivate prospects to move forward, recognize people who deserve it the most with Virtual and Event Gifting.