Do Incentives Work Off Of Greed?

Incentive programs were initially designed to reward achievement, to focus the efforts of the target audience on a specific goal.  Over the years, some participants are driven by greed not by the sense of achievement.  When this happens, the awards become entitlements for performance and not the recognition they were once meant to be.  Participants want to know WIIFM (What’s In It For Me)?  Losing sight of the objectives of the program and just relying on the greed of the participants is dangerous ground.  In any incentive program there will be participants that are only motivated by the prize and not for the achievement but if this is pervasive, all future programs are in jeopardy. 

The actual award should be secondary to the program.  We all know we can’t necessarily change motivation because it is intrinsic and that means it’s different for all of us, but we can change habits, swapping out bad habits for good habits and rewarding that conversion.  When the prize becomes the focus and the motivation is greed, we all lose.  I remember one of my first incentive programs (I didn’t design it, just communicated it to the participant audience) and someone in the audience said “What, no car?”  A competitive program was offering a car for performance and now that is the standard prize to get their attention and focus. 

If we allow greed to be a factor in our program design, we are destined to create ever more lavish prizes to get participant buy in and acceptance of the program.  Incentive programs are for rewarding performance that is above and beyond normal performance.  They should be designed to reward the incremental effort that it took to achieve the stated goal.  Too much focus on the prize and we now have a program that more sweepstakes than incentive.  People that play the lottery are focused on the prize, there’s no additional effort required, just buy the ticket.  Don’t let your performance improvement program become a sweepstakes.

It Can’t Be That Hard

Recently, I sat down with a friend that wanted to know more about what I did for a living.  He knew that I was in the incentive or performance improvement business and his first question to me was “Why would a company hire you?”  “I mean, it can’t be that hard.”  He’s right.  On the surface, it seems pretty simple to design a program, tell everyone about it, and then give them some prizes when they achieve the results.  Sounds simple, so why DO companies hire me to do what they could do themselves?  Well it’s not rocket science but there is some science to it.  There is also some art.  If you just wanted to give some people some prizes, then yes, you can do-it-yourself.  But don’t be surprised if you spend the money and don’t get results.

If you are able to identify the objectives you want to accomplish; create the rules that would achieve those objectives; target the people that have the power to achieve those objectives within those rules; engage them or grab their interest long enough to get them interested; motivate them to change their current behavior; keep them engaged over a long period until the objective is achieved; reward them when the achieve the objective and then challenge them to continue to improve their performance; identify which award is best suited to motivate them; capture all of the data associated with the program, the individual and the process; report back on all of the data and analyze what is working and what isn’t working and know what to change; and then, when all of that is done, determine if you got the return on your investment that you or your CFO was looking for.  If you can do all of that and know where the pitfalls are and what not to leave out of your program, then yes, you can probably do this on your own and it’s not that hard.

Most companies don’t do this for a living and outsourcing these tactical elements allows them to focus on results and collaborate on the strategy.  Like everything I outsource to someone, I could probably do it myself but I’ve learned that typically it will cost more and take twice as long if I do it myself.  Obviously the more risk there is in completing the task, the more likely I am to outsource it to someone that knows what they’re doing.  If there’s no downside to your program and you don’t mind spending the money and aren’t concerned about a return on the expenditure, then I would try it myself.  Otherwise, I’d get help.

Cash is King

Whenever you question employees or salespeople or distributors about what the most appealing incentive is to them, the answer is always cash.  In reality, cash is a poor motivator so save your research time and effort because the results are always the same.  By why not use cash?  It’s easy.  Participants can get whatever they want.  I don’t have to do anything different to hand out cash.  Cash incentives do have a place and a purpose.  If you consider all of the promotional efforts used to create a purchase of a product, cash is used quite often and for good reason.  Cash is best used when it is used as a replacement for a normal expenditure.  If you were going to purchase an item and there was a coupon offered for purchase of that item, that’s a cash incentive.  Sale items, bundling, couponing and rebates are all cash incentives.  You were going to spend your cash for the purchase and you saved your cash or were reimbursed.  Cash was replaced. 

Where is gets confusing is when cash is used as a reward for performance, not purchases.  Now it has crossed the line from everyday living expenses to achievement and relegated that achievement to a payment for services.  Non-cash awards have a staying power that the industry refers to as “trophy value.”  You’ll remember that trophy for years after the actual performance but you won’t remember what you spent the cash on.  There have been numerous studies on the use of cash and non-cash incentives (see The Benefits of Tangible Non-Monetary Incentives from the Forum for People Performance Management and Measurement at http://www.performanceforum.org/) and while cash is always requested, it underperforms other awards in cost and longevity.

When you are designing your incentive program, start by asking yourself what the participant is being asked to do.  If they are giving up earnings to purchase an item, then some form of cash incentive is best.  If they are being asked to increase their performance, to do something extra, above and beyond, then a non-cash incentive is best.  Easy to administer is not always the best solution and could be more costly in the long run.

I Don’t Need Incentives

Many companies think that incentives are “double dipping.”  I’m running some spiff program or worse, a full-year incentive program to pay employees (either operations or salespeople) to do the job I hired them to do.  I don’t need an incentive program to motivate someone to do what their salary or hourly wage already should motivate them.  Wrong.  Human psychology is a little more complex than that.  Remember the old Hawthorne studies that we all heard about in Business School.  They turned the lights up and productivity went up.  They turned the lights down and productivity went up.  What they deduced was that any attention paid to the employees had a positive effect.

We come a little farther since those studies and the negative incentive (Do this or you’re fired) to realize that “the stick” is not as powerful in the long run as “the carrot.”  It’s not about just rewarding someone for doing their job either.  Incentives are grounded in human psychology.  They target the audience that can have a positive impact on the business issue; engage them; communicate the objectives; track their performance toward stated goals; reward them for attainment and analyze the effectiveness. 

There are lots of programs that don’t work.  Many times, a company will create their own rules for an incentive, think they have all the bases covered, run the program and then find out the ROI was negative.  That may be enough for them never to run another program.  Too bad.  They can learn a lot from incentive professionals that have designed hundreds if not thousands of programs and know where there are pitfalls. 

What Are Incentives?

When is the last time you were influenced by an incentive?  Before you answer, think about what an incentive really is.  If you immediately thought of the trip to The Bahamas on an all-expense paid President’s Club, you might think it has been quite a while if ever.  But what about the last time you used a coupon for groceries or a discount coupon from a fabric store or hobby store?  They’re all incentives.  Incentives are designed to change anticipated behavior.  I wish I could say they change motivation but that isn’t true.  They change behavior.  Couponing is designed to get the consumer to try a new product or increase the purchase volume of a product.  Sometimes they are cross-coupons to get the consumer to purchase a product that is tied to another product.  In the retail market, it doesn’t even require a coupon to be an incentive.  In-store displays with SALE flashed all over are incentives.  So why are they sometimes viewed as negative?

Remember that incentive travel program for the AIG executives in the fall of 2009?  It’s what you remember even though it was a General American travel program for brokers that had exceeded stated objectives and earned the incentive travel trip.  So why all the negative press?  The government was bailing out AIG and here they were sending people on a “boondoggle” to Phoenix.  Wait.  The program was already paid for and cancellation penalties would exceed the cost but let’s ignore the facts.  We don’t like it because these brokers were living it up on our tax dollars.  Right? 

Just before this happened, our government announced the Cash for Clunkers program (an incentive program) that cost the taxpayers $3 billion.  Now that’s an incentive program.  Everyone thought that was great but guess what?  In studies conducted after the program, researchers found that all the program did was pull forward purchases that would have happened already.  For two months, car dealers saw an increase in sales, and this increase was completely reversed by the next 7 months of reduced car sales.  There was no effect on jobs, house prices or home default rates from the program.  Too bad our government did enlist incentive experts to assist in the design and operation of the program.  They would have created the economic models with an ROI established and measured against benchmarks like they did for the General American travel incentive program.

Incentives are all around us, influencing our behavior every day.  Without incentives, we would lack the motivators that enhance our performance beyond salary and compensation.

Welcome to Only Carrots

“Only Carrots” is about incentives and motivation.  I really dislike the common usage of carrots for positive incentives and sticks for negative incentives.  It classifies us as if we are all donkeys and can be easily led by a carrot that we will never actually get to taste or worse that we can be beat into submission to demonstrate the behavior that is desired.  Neither of these metaphors is accurate.  People aren’t dumb enough to chase some incentive that they have no reasonable chance of getting.  People are way too skeptical of any incentive and are usually looking for the hook.  What’s the hidden agenda?  Sticks are even worse because not only won’t they lead to motivation but they lead to dissatisfaction, dissention and could sabotage future efforts. 

Anyone in sales that hasn’t seen Glengarry Glen Ross should go out and rent the movie.  Even if you are not in sales, it is worthwhile and you won’t see a cast like this ever again.  This movie is a dark comedy and at one point, Alec Baldwin announces an addition to this month’s sales contest: “As you all know, first prize is a Cadillac Eldorado. Anyone want to see second prize? Second prize's a set of steak knives. Third prize is you're fired. You get the picture? You're laughing now?”  This is funny in a group setting talking with friends.  It’s not funny if you have ever been under that kind of stress to perform.  I’ve heard people describe a salesperson’s job as “perform or perish.” 

In future posts, I will be discussing incentives and motivation from impulsive purchases by consumers to top tier salespeople exhibiting “best practices” and everything in between.  I welcome your comments and thoughts since this is not an exact science and all of us are motivated intrinsically.