A Special Note Before You Begin

Although the following study was prepared in August 1995, the information you will find here offers a valuable methodology by which to analyze and compare how sales performance is affected by incentive programs, especially as it relates to multiple incentive programs that are implemented at a company over time. For example, in this study, the insurance company had as many as four concurrent promotional and incentive programs in place at one time. This means more awards and more involvement for the agents, but it also made measuring and isolating the effects of each program substantially more difficult.

We at The Incentive Research Foundation make special reference to this study because it offers you, the incentive program planner, valuable guidelines on how to compare program results today ... just as it did back in 1995. With that qualifier made, the following text is from the original document published in 1995.

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Executive Summary

The Incentive Research Foundation provided funding and assistance to Northwestern University and Agora, Inc. to develop a value measurement tool for travel and other incentive programs. A U.S. based insurance company furnished data on sales, agents and incentive programs.

The company has captive sales agents who sell various insurance products door-to-door and receive incentives that include trips (a convention cruise), merchandise, cash and recognition. The qualifying period for the incentive trip is based on a full calendar year. The cruise is taken the following January.

The analysis was performed by Agora, Inc. between February and August 1995, based on 1993 - 1994 data. The data was provided in electronic form and was analyzed by applying a limited number of variables against sales. The measurement methodology appears to be useful. Although the data set was somewhat limited, several key management insights about incentives were possible.

Key Points
  1. Travel incentives for this organization appear to be valuable in generating and supporting consistently high levels of sales performance over extended periods of time.
  2. The organization has a high level of churn among agents, in spite of the fact that there are various incentive programs being used.
  3. For this organization, it appears that incentive programs might be more effective if tailored to different groups of agents based on tenure, and possibly age and/or gender. This segmentation of agents would likely assist in optimizing the incentive program mix so that agents can be nurtured and the highest sales levels can be achieved.
  4. Peak performance for agents appears to be between 17 and 22 months. The scheduling of incentive programs to reflect this period might be effective.
  5. Women achieve rewards in a greater proportion than their percentage of the agent population. It appears that women do well in this type of selling environment and respond well to incentive programs.
  6. There is a core group of agents who consistently achieve incentive awards over time and whose sales are substantially higher than those who do not earn awards. A more detailed analysis of these agents might be useful to management.
  7. Mid-level managers receive a greater proportion of awards than they represent in the selling population.
  8. The incentive programs appear to have been less effective in generating sales overall in 1994 than in 1993.
  9. Incentive programs for this organization, while creating incremental business, may cause some deterioration in the quality of sales and therefore the profitability of the policies written (Cancel At Issue problems). Incentive program administrators should likely focus on quality of sales during incentive program periods.
  10. Measuring the value of incentives and incentive programs is possible with the use of longitudinal data.
  11. While there was a continuous incentive promotion in effect, by averaging four to six years of historical sales data, it is possible to smooth out the effects of incentives and seasonal fluctuations in sales. Thus, a baseline of expected monthly sales without incentives or seasonal variations can be established. (The baseline is a statistical calculation and can be considered accurate within a specific range). As an example, for this organization, the baseline monthly sales for all agents total $859. Those agents who qualified for the travel incentive had an average monthly sales level of $2,181 -- a difference of $1,322 or 250%.
  12. The total cost of the travel incentive program per qualifying person (and their guests) is approximately $2,600. Using the monthly sales average of $2,181 for those who qualify and an average monthly sales level of $859 per agent who does not qualify, the cost payout is just over two months.

These findings apply only to the cooperating company and may not apply to other organizations. Further usage of the measurement tool will provide the basis for developing such generalizations. Cost data on incentive programs besides the convention cruise travel incentive were not provided to the research team. Therefore, it is not possible to conclude whe ther one incentive program is more cost effective than another or, whether or not the total program provides a favorable cost/benefit result.

The analysis does show that incentive programs can be approached in a more managerial way. For example, for this organization, it appears that a focused, more targeted approach, might lead to more consistently high performance levels by sales agents and incentive programs which can lead to profitable, incremental business.

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The Incentive Research Foundation commissioned Northwestern University and Agora, Inc. to develop an incentive measurement tool which would help explain and illustrate the value of travel and other incentive programs. The initial implementation of the methodology and approach recommended by Agora, Inc., used data supplied by the organization, which The Incentive Research Foundation contacted.

Historically, most incentive evaluations have been developed to measure the short -term effects of the program, i.e. increases in sales volume during a period of time, increases in employee performance and the like. It has been difficult to measure the longer-term effects of incentive programs, such as continuing or enhanced sales over time, improvement or commitment by employees, employee tenure, satisfaction, etc. Therefore, there has been a continuing demand for additional measures of incentive programs to determine their total and perhaps continuing value to the organization.

During the summer of 1994, two Northwestern University integrated Marketing Communications graduate students, supported by a grant from The Incentive Research Foundation, surveyed major incentive users to determine the various types of incentive programs used. As a result of that initial study, The Incentive Research Foundation requested Northwestern and/or Agora, Inc., to develop a concept to measure the longer - term value of incentive programs. Agora, Inc., developed the initial concept of longitudinal measurement using data which should be available in most organizations. The approach was funded by The Incentive Research Foundation, and the study began in January, 1995.

The development of the measurement process, the analysis of data and the resulting report, were developed between February and August, 1995 base d on 1993 and 1994 data. The report, which follows, provides the findings of this first study on data supplied by the cooperating organization. It, therefore, is company and organization specific. While there may be results and implications which may later prove applicable to other organizations, one is cautioned against assuming these will be found in further studies or that they can be applied to other organizations.

A separate report on the methodology, the analysis process and how this research strea m might be extended and expanded has been furnished to The Incentive Research Foundation.


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