Sign Up for Our Newsletter
Designing for Successes: Effective Design Patterns for Employee and Sales Programs
DownloadsFull Study: Designing for Successes: Effective Design Patterns for Employee Recognition and Reward ProgramsFull Study: Designing for Successes: Effective Design Patterns for Sales Incentive Programs
With the majority of all U.S. businesses (84%) now using non-cash awards and the majority of top performing businesses (those with the highest revenue growth, customer satisfaction, and employee satisfaction) saying their executives support their non-cash recognition and reward programs as a competitive advantage, the eminent need to understand how to create effective programs becomes clear. This begs the question: What patterns exist in program design among effective non-cash incentive programs?
To this end, the Incentive Research Foundation (IRF) analyzed several years of relevant research to identify noteworthy design elements for effective non-cash recognition and reward programs. The study examined effective design patterns for two main incentives program types: employee and sales.
EMPLOYEE RECOGNTION AND REWARD PROGRAMS
Looking for Reward Opportunities: Non-Core Job Roles
According to a recent marketplace study conducted by the Incentive Federation, employee reward programs are now the most prevalent non-cash program type, with 72% of U.S. businesses having one or more programs.[i]
Employee reward programs continue to grow in popularity as organizations increasingly ask employees to take on additional roles and responsibilities that fall outside of their primary job duties. These “non-core” job functions can be as diverse as running innovation teams, increasing personal wellness, training other employees, increasing productivity, learning new techniques, or conducting business in line with corporate core values (e.g., honesty, integrity, grit, etc.). Because traditional compensation systems do not adequately address the prevalence or variable nature of non-core job roles, organizations are seeking non-compensation alternatives to recognize employees for engaging in these roles.
Notably, IRF research reveals that non-cash rewards are an excellent motivator for engaging employees in these non-core job roles.[ii] Accordingly, in a marketplace where a company's success is predicated on how well it engages employees in these roles, program designers should explore engagement in non-core job functions as key opportunities in their employee-focused programs.
Setting Program Objectives: Focus on Goals
The emphasis of non-core job roles is evident in the objectives many organizations have for their employee recognition programs. While fifty years ago non-cash award programs were targeted primarily at two behaviors: safety and years of service, businesses now have a range of primary objectives for their employee rewards programs.
Data from the Incentive Federation indicates that the most common main objective of employee programs is improving morale (84%), followed by improving productivity (58%) and improving customer satisfaction (48%). Other objectives for employee programs include recognizing years of service (41%), promoting innovation (28%), promoting wellness (23%), promoting safety (14%), rewarding completion of training (9%), and promoting cost control (8%).[iii]
Determining Who Gets Rewarded: Reach is Key
When program owners were asked to rank over a dozen different design priorities, the key design consideration for employee programs, by far, was making sure a program rewards the right people. This key consideration was followed by a focus on ensuring the programs make recognition a part of day-to-day activities.[iv]
But who are the “right” people? Interestingly, the design priority seems to have shifted over time away from exclusively ensuring only the truly exceptional performing employees receive rewards to ensuring as many solid-performing employees as possible get rewarded. Moreover, top performing organizations echoed this with a focus on the reach of their programs. When asked whether their non-cash program design was structured with the goal of rewarding and recognizing the truly exceptional performers (exclusivity) or if it was structured with the goal of each participant receiving a recognition or reward in the program (reach), top performing companies were more likely to say reach. More than half (56%) of top performing companies said reach was the focus of their employee program design structure.
Developing Rules Structures: Goal-Driven
Organizations use many different rules structures to help them accomplish their objectives. When it comes to top performing companies in the United States (those with the highest revenues, customer satisfaction, and employee engagement), their approach is often goal-driven. As shown in the IRF’s findings, of these top companies, 68% reported that they use goal-based earning for their employee programs, with participants receiving individualized goal targets and earning awards when they reach these goals. Furthermore, 67% of top performing companies use top performing employee structures, 58% use team recognition, and 55% use discretionary recognition. A little over a third or more of top performing organizations (39%) use service anniversary milestones, and 34% use nomination-based structures.[v] Top performing organizations were significantly more likely to have goal-driven programs and significantly less likely than average businesses to have service anniversary programs.
Measuring Effectiveness: Leverage Multiple Metrics
IRF research shows that top performing companies leverage analytics more than their average performing counterparts when it comes to measuring the effectiveness of programs. In fact, more than three-quarters of top-performing firms reported that they fully leverage the performance data produced by their program, using analysis and insights to guide decision in employee programs.[vi]
According to an Incentive Federation Program Design Study, the three performance metrics that are most often used to evaluate the success of employee reward programs are productivity (73%), employee tenure (49%), and employee satisfaction (49%).[vii]
Funding the Program: Bottom Up
The exact budget varies greatly by organization size and focus of the program. Incentive Federation data shows the vast majority of businesses with $1 million to $10 million in revenue have employee program budgets of less than $100,000, while larger businesses budget $500,000 or more.[viii]
Budgets can be created bottom-up (calculating the appropriate investment as a percentage of the participant’s income) or top-down (by executives determining the budget based on prior year spending and then adjusting for overall firm financial performance). As it turns out, research conducted by the IRF indicates that top performing companies budget quite differently than average ones—top companies are 80% to nearly 100% more likely to use bottom-up or income-based funding. In other words, their budgets are predominately based on income, using a percentage of employee income to calculate their budgets. On average, an employee in a top performing business can expect to receive $170 per year in non-cash employee rewards, while employees in average performing businesses can expect to receive around $150.
Supporting the Program: Reach Outside
According to Incentive Federation research, the vast majority of businesses (two-thirds or more) use suppliers for awards and almost half look to suppliers for expertise in the best ways to recognize or motivate participants.[ix]
IRF findings echo the importance of outside support—with over 60% of top performing companies going outside their walls for program support, they are statistically more likely than average companies to look outside for partner expertise.[x]
Program Consolidation: Key Design Pattern
As shown by an IRF study, top performing companies are two times more likely to have a consolidated program or single employee program across the company. That translates to 42% of top performing companies having a single program. More than half of top performing companies said they still had multiple programs, but that these programs were designed and managed under a common purpose.[xi]
Determining Awards: Mix it Up
Data from the Incentive Federation indicates that the most prevalent types of awards in employee programs in the United States are gift cards (71% of businesses), merchandise (38% of businesses), award points (36%), and travel (30%).[xii] It is important to note, however, that the vast majority (over 80%) of organizations use more than one award type for employees, with many using three to four types.
For top performing organizations with employee programs, company-oriented awards (ones that build brand loyalty and are easy to administer) were top in awards selections, followed by participant-oriented ones (awards allowing choice and providing a unique experience).[xiii]
Don’t be quick to disregard nomination-based, top performing employee travel, though. Organizations are now becoming savvy about how to use top performer travel for all employees, not just sales.[xiv] The IRF's case study of a nomination-based, top performing employee travel program showed how one executive used it not only as a way to quickly re-focus the organization on key priorities, but also to offer his key leaders insight into the types of adaptive performance which were helping differentiate the organization.
Administration: Investment in Tech and Communications
From IRF research it is clear that top performing organizations allocate a significant portion of their budget to design and operation (estimated at 49% of the total budget on average).[xv]
Integrating rewards and recognition into broader organization communications is key for top performing companies. Two-thirds of IRF survey respondents at top performing companies reported they do so for employee or sales programs. Top performing businesses are also more than 30% more likely than average companies to do so for employee programs.[xvi]
Three-quarters of businesses use some level of program-specific technology. One in five firms has strong program-specific technology in place, and a little more than 50% companies take a hybrid approach, using both program-specific technology tools and mainstream programs. One-quarter of companies do not use program-specific technology and instead rely on mainstream programs such as Excel.[xvii]
SALES INCENTIVE PROGRAMS
As 60% of all U.S. businesses use non-cash sales rewards, spending conservatively $23 billion annually on these awards, it’s important to pay close attention to the effective design elements of sales incentive and rewards programs as well.[xvii]
Setting Program Objectives: Emphasize Multiple Behaviors
Long gone are the days when sales programs concentrated solely on sales dollars. To use these tools more readily as a competitive advantage, many organizations are expanding beyond a single sales objective and incorporating other non-core job behaviors such as productivity, training, and culture into their program design. To that point, most organizations now have more than one objective for their non-cash sales program. The top three primary objectives for sales rewards and incentive programs today are increasing overall sales (80%), improving morale (76%), and improving productivity (58%). Other important sales program objectives include gaining market share (47%), increasing sales of specific products (27%), changing the culture (21%), promoting cost reduction (17%), and rewarding training completion (16%).[xviii]
Structuring the Rules: Center on Quotas
How should an organization structure its sales program rules to meet its primary objectives? In the same vein as objective-setting, programs now also require multiple targets, with quota-based rules structures—the first and most predominant structure in successful businesses. IRF research found that 80% of top performing organizations use sales quotas (individualized targets, participants earn awards when they hit those targets), 71% use top performer structures (goals set for all participants and top performers earn award at end of time period), and 51% gave team recognition awards (given to team for reaching team goals).[xix] These numbers show a balance of both hard (e.g., sales) metrics and soft (e.g., teamwork) metrics. Other goal-based structures and discretionary rewards were still used by more than 40% of top performing businesses. Interestingly, top performers were also 60% more likely to have no “top stop,” with three-quarters reporting they allow salespeople to have unlimited earning potential.
Rewarding the Right People: Expand Your Footprint
Program designers should aim to reach the right people, not just the top performers. Interestingly, who the “right people” are has shifted from a focus on only the top echelon to one that includes more of the middle. Traditionally, non-cash sales incentive programs were focused on rewarding only the top 5–10% of truly exceptional performers. However, when IRF asked planners at top performing companies in a recent survey whether their non-cash sales program structure was focused on recognizing the truly exceptional performers (exclusivity) or if it was structured to ensure each participant receives a recognition or reward in the program (reach), top performing companies were more likely to say reach. More than half (56%) of top performing companies said reach was the focus of their sales program design structure.
But how far are organizations trying to reach? Fewer than 20% of top performing organizations indicated that all salespeople are eligible to earn non-cash rewards. Additionally, the research showed that on average, roughly 56% of the sales workforce in top performing organizations is eligible to earn non-cash rewards.[xx]
Designing Top Performer Travel: Understand and Reflect Your Culture
One of the biggest findings from the IRF’s most recent research shows how incentive programs, specifically top performer travel programs, are a distinct distillation of the organization's corporate culture. These programs are most successful when they are designed to reflect and enhance this culture. The culture-focused design in top performer travel programs has implications for how meetings are incorporated, if spouses/significant others are invited to the trip, how the rewards are communicated, and how top salespeople are recognized.[xxi]
Each organization has “signposts” to help guide planners and designers to patterns that will support this cultural reflection. For example, if the company is of the “ardent” (focused on emotion and fun) or “social butterfly” (focused on relationships, the “whole employee” and family) types, business meetings will not be a central program focus and spouses will almost always be included. Alternatively, if the organization is the “icon” (top performers embody the essence of the corporate culture to which other employees aspire) or “maverick” (top performers are seen as the innovators and risk takers) type, business meetings will be a core part of the top performer program and should concentrate on the sharing of best practices and solving of business problems respectively. (Note: More information on designing for culture is available at the IRF's paper Striking the Balance: The Integration of Offsite Business Meetings and Incentive Group Travel.)
Program Funding: Start at the Bottom
As with employee programs, top performing companies are nearly 100% more likely than average performing companies to use a bottom-up model, with over half (57%) using income-based funding. This means instead of setting the budgets from the top with executives, top performing organizations are starting at the most base level: with the sales employee and their salary. IRF research shows that while the average business in the United States uses 7.2% of income to calculate budgets, top performing businesses use 9.4% of projected income. Additionally, while less than half of average performing companies in the United States have no top stop on their programs, almost 80% of the top performing businesses have no top stop on their sales incentive program, meaning the sales person can earn unlimited awards based on the amount of product/service they sell.[xxii]The typical sales person can expect to earn $3,916 in a top performing business annually, with the top performers in these companies earning over $5,000 in awards.[xxiii]
Determining Awards: Combination is Common
Sales programs can use one of many award types, including recognition awards, recognition events, merchandise, symbolic awards, gift cards, logo merchandise, individual travel, group travel, group incentive travel, and cash. On average, businesses use more than seven types of awards for sales incentives.
Specifically, 72% of U.S. businesses with sales incentive programs use gift cards, followed by 44% that use award points, 44% that use merchandise, and 34% that use trips and travel. Over 80% of U.S. firms use more than one award type.[xxiv]
Multiple Programs: Efficiency in Consolidation
Although not yet the vast majority, a growing number of top performing businesses now maintain a single sales incentive program for the entire organization. Most interesting, however, is that these top performing companies are more than three times more likely than average performing businesses to have a consolidated program across the company. That translates to 42% of top performing companies having a single program. Additionally, more than half of top performing companies said that although they still had multiple sales programs these programs were now designed and managed under a common purpose.[xxv]
Program Support: Think Outside Your Walls
While many organizations still run part of their sales programs internally, IRF findings show a trend towards outside support—with over 60% of top performing companies seeking support from external partners. Top performing businesses are also statistically more likely than average companies to engage outside partners for their expertise.[xxvi]
Not surprisingly, awards are a key part of supporting the program. The Incentive Federation found that half of U.S. businesses engage supplier expertise for best ways to motivate participants and over two-thirds using external award suppliers.[xxvii]
Administration: Communications and Tech Support
Good incentive program design requires technologies and tools that support the program. IRF research indicates that 43% of a top performing company’s budget generally goes to program administration (design and operation) versus only 30% of a budget of an average performing company. Top performing businesses were more than 79% more likely than average companies to integrate communications for sales programs.[xxviii] Likewise, over 70% of businesses use some level of program-specific technology to support their non-cash sales incentive programs, showing a distinct movement away from solely using common tools such as Excel or Word.
Measuring Effectiveness: Multiple Metrics
Just as with employee programs, more than three-quarters of top performing firms reportedly fully leverage the performance data produced by their sales rewards programs and use the insights and analysis to guide decisions in sales program design.
Results from an Incentive Federation study show that the three performance metrics that are most often used to evaluate the success of sales incentive programs are product sales in dollars (66%), net new customers (49%), and product sales in units (37%). Other key metrics include financial metrics such as revenue (36), productivity metrics (25%), staying in budget (24%), ROI (20%), tenure (20%), and satisfaction surveys (14%).[xxix]
The IRF Designing for Successes Study was supported by IRF Research Advocacy Partner MotivAction.
[iii] Incentive Federation Program Design Study 2015
[xviii] Incentive Federation Program Design Study 2015