Why Rewarding Compliance Beats Enforcing It: The Behavioural Economics behind Employee Expense Compliance
For decades, Indian businesses have been using the same approach for employee policy compliance by tightening employee expense compliance without any measurable change in expense fraud prevention, delayed filing, and employee adoption. Even with tighter rules, tighter budget spending, and other instruments in place for expense policy enforcement, the finance teams are not able to eliminate the problem of employee expense compliance and are failing in employee fraud prevention. The question no longer persists if the company has enough rules in place for employee expense compliance, but what if the industry is solving the wrong problem?
Now you might be thinking, “What is rewarding compliance?” To answer your curiosity about it, rewarding compliance in corporate settings simply means the act of giving positive reinforcement, praising employees for their good work, or handing out bonuses when employees finish standard training, meet basic standards, or follow the given set of rules.
Traditional businesses have long thought that stronger expense policy enforcement automatically leads to better employee expense compliance. In traditional economics, businesses assume that employees are rational, make policy-compliant decisions, and follow expense policy compliance without any discrepancy, which is highly unlikely in the practical world. Nobel Peace Prize-winning behavioural economist Daniel Kahneman has demonstrated that employees rarely behave rationally, especially when faced with friction and complexity.
Behavioural economics finance is changing the way modern businesses are evaluating how their employees make decisions and follow expense policy compliance by making conscious choices. According to an internal survey report by Gartner, about 87% of employees experienced situations where they didn’t know how to comply, while the other 77% admitted that they rationalised non-compliance under certain circumstances, further strengthening the lack of better employee policy compliance decisions in place, along with a prolonged use of the same traditional economics when it comes to employee expense compliance.
Another study from Deloitte suggests that threatening harsher punishment can actually produce lower compliance than building a culture where employees are motivated to make policy-compliant decisions. American economist Richard Thaler’s work on nudge theory further showed that making small changes in incentivisation and behavioural choices often influence behaviour more effectively than imposing harsh policies.
The Enforcement Problem in Corporate Finance
Businesses have been facing problems in managing expense policy compliance and taking disciplinary measures to tackle employee expense non-compliance. Due to the inefficiency of businesses in enforcing expense policy compliance, they are faced with employee fraud, improper employee expense compliance, and going over budget in their business spending. Since there are multiple strict rules and expense policy compliance measures already in place in a business setting, it becomes difficult to pinpoint where businesses are leaking money due to the enforcement problem in corporate finance.
How traditional expense management approaches compliance
Traditional expense management software is designed to control employee expense compliance and expects employees to maintain a proper flow of expenses, retain proper receipts, and go through multiple approval workflows before finally getting their reimbursement claim approved. This long delay for employees serves as the main cause of the lack of employee expense compliance, as it puts all the pressure on the employees to adhere to expense policy compliance.
Why employees resist enforcement-based systems
Internal surveys from companies like Gartner suggest deeper issues with employee expense compliance, with almost 87% of employees not knowing how to comply with expense compliance policy. This suggests an oversight in the understanding between the businesses and their employees about expense policy compliance, possibly due to the complexity. This tells the business why employees violate expense policy even when they are aware of the expense policy enforcement.
The hidden costs of enforcement
Due to the strict enforcement approach of businesses, some areas with hidden costs are also created that extend beyond policy violations. Burdening employees with proper adherence to company policies by collecting receipts, approving expenses, and claiming reimbursement creates delays in the process that add to the cost of business. By introducing more expense policy enforcement than necessary, businesses weaken employee expense compliance rather than strengthening it.
Check out more for expense management software with our blog → top 10 best expense management software.
What Behavioural Economics Tells Us About Compliance
Businesses have been finding better ways to enforce expense policy compliance with behavioural economic finance to enforce better employee expense compliance while maintaining proper governance over the policies. Unlike traditional economics, humans rarely react rationally in a corporate setting and follow employee expense compliance completely. Behavioural economics in finance aims to bring a subtle change in the way companies are actually managing their business expense.
The role of positive reinforcement
Traditional businesses rely on forceful enforcement of expense policy compliance that relies on fear of rejection or disciplinary action to encourage compliance. Behavioural research has showcased a different approach to tackle the problem of expense policy compliance and showed that positive reinforcement is more beneficial for businesses to manage employee expense compliance. Rewarding employees and recognising their choices has a long-term positive effect on them and allows them to follow expense compliance policy closely.
Nudge theory in workplace behaviour
The nudge theory, given by the Nobel Prize winner, Richard Thaler, is very popular in behavioural economics, proposing that making small changes in how choices are presented can significantly influence behaviour unconsciously. Applying this same approach in the workplace, businesses can improve their expense policy compliance by recognising the choices taken by employees continuously and incentivising them for their cost-conscious choices.
Why intrinsic motivation outperforms external control
World-renowned behavioural scientist Daniel Kahneman’s work on decision-making demonstrates that people rely on quick and reactive thinking, unlike the assumption of traditional economics that humans act rationally and are aware of their choices. Behavioural economic finance focuses on the development of such models that break traditional beliefs by incentivising employees to make conscious choices and focus on strengthening employee expense compliance without relying on external control methods.
Real-world examples from other industries
The increasing use of behavioural economic finance has been benefiting various businesses across different industries and generating increased revenues for them. The credit card industry is one of the biggest examples of this, where people are given loyalty reward points for making regular and continued purchases using specific cards. Some other examples include loyalty benefits given by the airline industry and streaks maintained on popular social media applications like Snapchat or LinkedIn games.
The shift from punitive to reward-based compliance
Businesses have been relying on continued use of external forces to control employee expense compliance, and while this drives expense policy compliance to a certain extent by tightening rules or increasing employee audits, it is unable to attain a level where the policy compliance issues cease to exist. According to the Association of Certified Fraud Examiners (ACFE), businesses lose about 5% of their annual revenue due to employee fraud, highlighting a need to introduce new measures with better expense policy compliance for employee fraud prevention.
This need has been taken up by behavioural economic finance practices that aim to minimise the challenges in employee expense compliance by influencing the choices made by employees. Harvard employee reviews summarise that employees are more responsive to the anticipation of rewards than the fear of punishment because the human brain is designed to react to positive outcomes immediately. Instead of relying completely on the presence of external expense policy compliance, businesses need to focus on working towards influencing the behaviour of their employees by making the desired action simpler and adding reward-based compliance to it.
Through the introduction of the rewarding compliance principle, businesses can start rewarding and recognising the employee behaviour and choices that they make that align with the expense policy compliance of the business. Through this, businesses can stop simply pressuring employees to make a policy-compliant choice and hovering over their heads to audit their expense claims, and shift to a more laid-back approach to managing policy expense compliance. This reward-based compliance approach is rooted in behavioural economics and finance and provides a new perspective for businesses in managing their employee expense compliance by turning it into a habit rather than an obligation.
How Reward-Based Compliance Works in Practice
The introduction of rewarding compliance in modern businesses doesn’t replace the external financial controls for policy expense compliance. By shifting to behavioural economics in finance, businesses are reducing their dependency on the traditional external methods used previously for employee expense compliance. Rewarding compliance works in favour of the business and influences the behaviours of employees to make policy-compliant choices over the long term, with the goal of not pressuring the employees to follow the policy but to reward them for responsible spending.
Rewards for on-time, in-policy submissions
Employees who submit their expense receipts faster, reduce the need for manual correction, and improve the reporting accuracy of the business are rewarded with brand partner or company rewards for submitting them on time. The introduction of rewarding compliance increases the employee policy adoption rate through the business through positive reinforcement and incentivises them by providing gift vouchers, wallet coins, loyalty rewards for some platforms, or other incentives that the business chooses.
Brand partner funded rewards
Some businesses have a big misconception around employee incentive expense management that, rather than saving money for their business, this practice of rewarding compliance increases the costs for the business by making them provide for the rewards provided to the employees. Modern behaviour-based T&E management platforms that are based on the principle of behavioural economics curb this misconception by providing rewards to the employees that are funded by brand-partner relationships, making reward-based compliance decisions.
The employee experience shift
While traditional expense reporting systems increased the workload of the employees by making them follow strict expense compliance rules and submit their expense claims through manual administration, modern reward-based compliance systems eliminate this need for businesses. By combining AI-powered spend management with rewarding compliance, it automates policy checks and allows employees to spend less time filing expense reports manually, shifting their experience.
The finance teams experience shift
The behavioural economics in finance shifts the experience of finance teams and CFOs by providing them with better employee expense compliance reports due to fewer checks, fewer policy violations, and increased employee satisfaction. With these modern, rewarding compliance systems, finance teams are saved from chasing employees and regularly auditing them to check expense policy enforcement, shifting the experience of the finance teams and improving governance of business expenses.
What Happens When You Make Compliance Rewarding: The Data
The success of any behavioural economics model depends on assessing the data that is available to the business after a prolonged period of time. Even if behavioural economics answers the why? The real value is seen by the finance teams after assessing whether rewarding compliance delivers some measurable improvements in expense policy compliance. The early data from one such modern behaviour-based T&E management platform, Spentro, shows that it does.
Adoption Rates
One of the major challenges for businesses is to know whether employees will use the newly introduced technology of AI-powered expense report software or not. Early data from Spentro suggests that businesses that use its behaviour-based T&E management platform achieve up to a 94% adoption rate by employees within just 90 days of implementation. A higher adoption rate improves the quality of data and spend management while creating a strong foundation for long-term expense policy compliance.
Policy violation drops
The behaviour-based T&E management platform is based on behavioural economics principles and provides rewarding compliance to businesses. Employees receive timely guidance on expense compliance, and automated expense policy checks are done, finally resulting in the decline of policy violations altogether. Businesses using Spentro have reported around 67% fewer policy violations, further showing how businesses can start saving more time and effort by using these behaviour-based T&E platforms.
Filing timeliness improvements
Apart from providing dedicated travel & expense management software, Spentro is a behaviour-based T&E platform that allows employees to file their expenses instantly without worrying about the need to check the validity of GST details, approval chains, and reimbursement delays. The AI-driven expense policy compliance of the platform and timely approvals of expenses allow businesses to focus on strengthening employee fraud prevention by identifying discrepancies at the point of spending and not after.
Employee satisfaction improvement
The benefits of using modern behavioural economics in finance systems extend far beyond the expense policy compliance metrics involved. Using the behaviour-based T&E management platform, rewards and recognition for employees become regular. Improving their experience by incentivising their policy-conscious choices. This helps inculcate a healthy feeling in employees and makes expense policy compliance more of a habit than an administrative task, where compliance participation is driven internally through positive reinforcement rather than external enforcement.
How Spentro Is Building India’s First Behaviour-Based T&E Platform in India
With the shift in the economics of the Indian financial landscape, Spentro is India’s first behaviour-based T&E management platform that is based on the principle of behavioural economics, thus focusing on influencing the behaviour of the employees with positive reinforcement rather than forceful expense policy enforcement. The AI-powered spend management platform allows businesses to manage their employee expenses, business travel, and corporate card expenses while benefiting from the India-native approach of the spend intelligence platform, Spentro, which helps businesses account for GST details and track UPI transactions in a single real-time ledger view.
As demonstrated by behavioral economists like Daniel Kahneman and Richard Thaler, unlike the traditional economic assumptions that people are rational and make only conscious decisions, it has been shown that in the business world, people normally don’t make rational decisions due to the fast-paced environment. Through the behavioural economics approach, the technology aims to influence the behaviour and habits of the employees and turn their expense policy compliance into a habit through the introduction of incentivising the employees for making policy-compliant decisions.
According to research done through Spentro’s finance team, 30%+ of expenses fall outside policy visibility, 20-30% of GST credits go unclaimed every quarter, 40-60% of finance time is spent on manual processing, and 3-7 average month-end closure delays are prevalent in Indian businesses. With the AI-powered spend management software, Spentro aims to reduce this lag and provide complete spend visibility into business spending with up to a 94% employee adoption rate within 90 days of implementation, 67% fewer policy violations, 60% faster approvals, and 80% lower overhead accounting costs.
Another distinguished factor of Spentro is the architectural structure, where rewarding compliance is not treated as an add-on feature but as a unique feature to support the behavioural economics approach in business. Spentro as a behaviour-based T&E platform provides partner-brand-funded vouchers as rewards to the employees, introducing employee incentive expense management while influencing the habits of the employees and making them take policy expense compliance seriously without any external force.
While businesses focus on improving culture, expense policy compliance, and digitalisation of businesses, the future of employee expense compliance is not limited to pre-existing expense management software but to the modern behaviour-based T&E platform that takes up rewarding compliance as an essential part of the business. Spentro’s approach follows this broader shift in the business landscape and allows employees to shift from simply using their expense report software to converting it into holistic employee expense compliance through behavioural economics.
How to Introduce Behaviour-Based Compliance in Your Organisation
Moving from traditional expense policy enforcement to reward-based compliance should not force companies to switch their spend management software. For a smooth employee expense compliance transition, businesses should focus on creating a smooth transition flow from strict expense policy enforcement to a rewarding experience for employees who are following expense compliance policies and making cost-conscious decisions for the business. Here are some points that you can focus on while trying to implement proper reward-based compliance in your business:
Assess your current compliance culture: Before implementing a rewarding compliance programme or introducing an expense compliance policy, businesses need to understand their internal compliance culture to allow modifications in that system culture rather than introducing a whole new one.
Choose the right platform: While looking for a platform to manage expense policy compliance, businesses should focus on selecting the right behaviour-based T&E platform that combines AI-driven intelligence with managing company expenses and integrating rewarding compliance within the business.
Design rewards that resonate with employees: When setting up rewarding compliance, the business needs to focus on designing rewards that resonate with the employees and are of some use to them, as it would not make any sense to the employees otherwise.
Communicate the shift properly: Businesses need to communicate openly and simply to the employees when they are about to roll out the behaviour-based T&E platform, along with the introduction of behaviour-based rewarding compliance, to avoid any confusion and reduce friction during the transition.
Measure the impact: Just choosing the right behaviour-based T&E won’t guarantee success for the business. To measure the impact of the platform, businesses are required to measure the performance and outcomes of the platform to know the areas where it could improve and ultimately re-implement after making certain changes.
Frequently asked questions
What is behaviour-based T&E management?
A behaviour-based T&E management platform is an AI-powered smart platform that not only combines expense management for businesses but also brings a change in the behaviour and habits of the employees by providing rewarding compliance for making cost-conscious and policy-compliant choices for the business. The objective is to build long-term compliance habits within the employees by influencing their behaviour and instantly incentivising them, driving a change through positive reinforcement. Check out a comparison of the best corporate travel management software → 10 Best Corporate Travel Management Software in India for 2026.
How can rewards drive employee expense compliance?
The human brain is wired to react to positive reinforcement more than to negative reinforcement. A reward reinforces exactly that for employees and influences employees to slowly change their spending habits and make transactions purely for reward-based compliance. By recognising the efforts of an employee in making timely expense submissions, businesses can provide rewards to drive employee expense compliance.
Do reward-based systems cost the company more?
No. A reward-based system doesn’t increase the cost of the company at all by providing rewards that are funded directly by the brand partners and delivered directly to the employees. This reduces the administrative effort of the businesses, which further helps the business to implement rewarding compliance and ultimately save costs by employee expense compliance.
Are behaviour-based platforms suitable for large enterprises?
Yes. Behaviour-based T&E management platforms like Spentro are suitable for large enterprises. Due to the increasing size of the enterprise, it becomes harder for the administration to track and process every employee expense manually. By providing AI-driven policy checks, automation, and behaviour-based policy compliance, Spentro positions itself as a suitable option for large enterprises.
What kinds of rewards work best for expense compliance?
Rewards that resonate with employees and are of some use to them work best for employee expense compliance. Some rewards like gift vouchers, loyalty points, cashback offers, and brand-funded rewards are examples of rewards that work best for employee expense compliance.
Is rewards-based compliance a proven approach?
Yes, the principle of behavioural economics is a proven approach that states that the behaviour of each employee keeps on changing and often is irrational. As organisations are growing rapidly, it becomes important for businesses to choose a behaviour-based T&E management platform like Spentro, which is emerging as a popular strategy for improving employee expense compliance while maintaining strong financial controls.
Conclusion
Looking at the modern economic landscape in Indian businesses, it is vital to notice that the future of employee expense compliance won’t be based merely on introducing stricter policies alone. While managing expense policy compliance externally is an integral part of the business, research increasingly shows that due to the shift from traditional economics finance to modern behaviour economics finance, expense policy compliance is based on the lasting influence of employee behaviour.
Improving employee expense compliance is no longer about managing it externally through stricter expense policy compliance but designing the system naturally into a rewarding compliance that appreciates each employee and influences their behaviour and spending habits by instantly incentivising their cost-conscious choices. By combining AI-powered spend intelligence with managing employee expenses, business travel, and corporate spend, Spentro is India's first behaviour-based T&E management platform that brings behaviour-based rewarding compliance, laying the stone for the future of expense policy compliance in India.
