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Do you find that your incentives plans aren’t achieving the results you want them to? A good incentive plan can deliver unbelievable results and a bad one can make things far worse by disengaging your team members or achieving the wrong outcomes.
In this article I explore the eight practical elements that are essential in all good incentive plans. Then I give you tactics you can execute in your business immediately to improve the results you’re getting.
Outcome-Focused
Incentive plans are about lining up your employees’ needs with that of your business. The needs of the business often rest in outcomes like converting more sales, having happier customers, or improving profit margins. Employee are usually more interested in outcomes like spending more time with their families, making more money, getting a promotion, doing more interesting work, etc.
As you can see, there isn’t a natural alignment here; it’s a standard Principal-Agent problem. This is where you need to start when setting up an incentive plan.
There are two questions to answer:
What do I want the outcome of this incentive plan to be on my business?
What do the team members I am trying to motivate want to get from doing a good job?
The first question is often very easy to answer. To answer the second, you really need to know your team. By know, I mean understand what’s important to them, what they do on the weekend, what they want their life to look like in five years. Are they saving for a vacation? Do they want the new apple watch? There are so many questions to ask but once you take the time and a genuine interest in your team, you’ll find it comes easily.
Write the answers to these questions down, as you’re going to want to reference them regularly.
Behaviour-Driven
In business, the way you act will inform the outcome you receive. In the same way that if you’re training to run a marathon, you don’t focus your time on power lifting, you need to ensure you’re doing things that match the goal you’re trying to achieve.
A great example of this is in a sales team. It’s well known that activity (outbound contacts) mean revenue results. Yet incentives are almost always focused on revenue or deals. To get the best results, rewards must be tied to the behaviour (in this case, dials) as well as the outcome (revenue).
What behaviour you are trying to influence to achieve the outcome your business is looking for? Finding this answer can be very difficult, however it’s always worth the effort. The best way to identify this behaviour is to find your highest performers in the outcome you’re looking to drive, then at what they’re doing differently. Do this both through observing and interviewing these top performers.
Once you’ve identified the behaviour you’re trying to drive, write it down. You’ll use it again as you communicate and explain the new inventive program to your people.
Widely-Appealing
Chances are, your teams’ performance on the outcome (metric) you’re trying to achieve falls into a bell curve. Where many incentive plans fail is they aim to reward their top performers with all the spoils and largely ignore the rest of the team.
This is a mistake because there are so many more middle-tier performers than there are top-tier. Think about it like this; if you’re rewarding the top 10% of your team for delivering outstanding results and it motivates them to improve their performance by 10% (assuming an equal distribution of workload and opportunity to achieve an outcome), then you’re going to improve the overall performance of your team by 1%. In contrast, if you’re able to build a plan which focuses on the top 66% of your team and they’re able to improve their collective performance by 5% then you’re going to improve your overall performance by 3.3%. This means you don’t need to make seismic shifts in process or huge breakthroughs in your business model to impact some pretty incredible changes in your business.
With that in mind, the rule you should be following here is that 66% of your team should be getting something for the effort they’ve made in changing behaviour to achieve your outcome. However, you’ll want to make sure your top performers are still making the most money of anyone on that curve.
All 66% should feel the love. As for the other 33%, well that’s a whole other article.
Timely
Give the reward as close to when the desired behaviour occurs as possible. If you’re trying to drive sales conversion with your team and the behaviour you’re trying to drive is constantly asking for the sale, it might be tempting to set up a monthly incentive plan that rewards your team members based on their conversion. However, your sales people will have an opportunity every day to display the behaviour change and every time they do this, it’s an opportunity for you to reinforce it.
If you’re only rewarding them for it once a month, they’ll only remember what they did most recently and it’s possible that they were only constantly asking for the sale at the beginning of the month. If that’s the case, they may actually feel as though you’re rewarding them for the wrong behaviour! This tendency is because of a cognitive bias called the recency bias, which impacts learning.
That’s an extreme example, but there is a lot of research which supports behaviour reinforcement through immediate reward. A great inverse example of this is the number of people who still smoke, despite the numerous warnings and overwhelming science that cigarettes will kill you. The cigarette rewards them now with a rush of nicotine and the abatement of cravings. The idea of dying is a really long way into the future and it’s easy to forget about or let their superiority bias take hold.
The rule you’re trying to follow here is reward behaviour as soon as possible. Immediate and tangible reawards are ideal.
Surprising
Most incentives are structured as a give-and-get model: If you achieve x number, then I will give you Y amount. That model can feel coercive and breed resentment in your team. While this method still has a place, particularly when the incentive is a substantial portion of the employees’ compensations (20%+), there is an alternative which can have an amazing impact: Catching your employees doing the right thing.
What does that mean? If you’re looking for a specific behaviour change, observe them and reward them when you see it. It doesn’t have to be a huge reward, it could be $5 dollars in cash to buy themselves a coffee, it could be a high five in front of the whole team or a quiet thank you behind closed doors. You know the individuals on your team and that will help you decide the type of reward (I’ll also go into more detail on making the reward meaningful in the next section).
Rewarding without the give and get relationship is unbelievably powerful. And it feels good to do!
Simple and Specific
There are so many things you need to do in your business, it’s easy to get bogged down. The same goes for a team with complicated incentives with multiple metrics and a bunch of qualifiers, drivers, and multipliers.
Keep rewards simple and specific. Choose one outcome, one behaviour, and one reward, then talk about them often. If you want to improve sales conversion, focus on asking for the sale and make the reward $50 every time you hear a salesperson do it. This makes it easy to remember, easy to explain, and this will significantly improve how far your dollar goes.
Well-Communicated
This is perhaps the most important of all the elements I’ve listed here. It’s about making sure your team knows about the incentive, understands why it’s important, how they can influence it, and remembers when it matters.
Storytelling is a great ally. I once had a team member who was managing my incentive program for me. He would take the faces of top execs in the company and put them on well-known characters. He’d then write a story that involved that character and explained the incentive he was rolling out.
While you don’t have to go to those lengths, it’s really important to consider your audience. Try to make the communications stand out, talk about the incentive regularly, and ensure they’re posted front and center in the work environment, with eye-catching design.
Creating Meaningful Rewards
There no one-size-fits-all solution for rewards. Reward needs to be meaningful to the person receiving it. What does that individual care about? Everyone on your team has their own goals and things they care about, which I touched on a little earlier. Generally, its easiest to think about these in terms of life’s currencies; Time, Money, Love, Effort, Health and Service. Although your team likely won’t express these to you in these terms, it’s important to think about which ones they value most highly.Consider these factors when choosing a reward:
Public or Private
Everyone has a preference for either public or private recognition. Here are two contrasting perspectives that illustrate my point: An employee of mine is suspicious of positive feedback given in private because they wonder why the person wasn’t willing to say it in public. However, I’m suspicious of positive feedback given in public because I wonder what the person giving that feedback had to gain by giving me that feedback in public. Again, getting to know your people will help you understand their preferences.
Size of Change
The reward should have some relevance to the level of effort required to make the behaviour change you’re asking for. If you’re asking them to make a slight tweak to something they’re already doing, less effort is required than if you’re asking them to take on a completely new process. Their reward should reflect that.
Recipient’s Income
This one is fairly intuitive, but peoples’ value of money tends to move in relative terms to how much of it they have/earn. Giving someone who makes $40k a year a $1k bonus will have a very different impact on their lives to someone who earns $250k a year. Ensure the reward amount takes this into consideration.
Type
Again, considering life’s currencies and the needs of the individual, some people prefer cash, others would prefer access to time with a senior exec for feedback on their career. The type of reward should It depend on the person’s outlook and what matters to them. You can get creative here. Things like paid time off, control of their schedule, flexible work hours, work from home privileges, cash bonuses, access to mentors, and special projects can all have a huge impact on motivation. There are so many possibilities, have some fun with this one! Everyone will like a mix of reward types, but each person will prefer their rewards to be weighted more heavily to a particular type. Experimentation with individuals will yield the best results over time.
Conclusion
Effective incentive packages must be: outcome-focused, behaviour-driven, widely-appealing, timely, surprising, simple and specific, and well-communicated. If you take even one of these elements and introduce it to the way your incentivising your teams, I guarantee you’ll have results that improve your bottom line fast.
But there is no cookie cutter for a killer rewards program. The most important element for your incentives is thoughtfulness. Creating meaningful rewards requires getting to know your employees and making a significant effort to craft individualized rewards that are impactful for each person on your team.
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