Seven Critical Questions in Employee Incentive Program Design

In times of turmoil and uncertainty, a leader’s instincts may tell them to suspend incentives, rewards, bonuses, raises and other discretionary spending to preserve cash and even jobs. Designing new incentive programs or even continuing existing ones might feel like an avoidable expense in tough times. Leaders should remember, however, that these tools are among their most potent instruments to help accelerate recovery by focusing employees on priorities, shaping their behaviors, increasing their engagement and building trust.

Organizations must ask questions up front to determine the type of incentive program they should use to address any given challenge or opportunity. The following questions require answers no matter the goals or behaviors you aim to encourage, and regardless of the situation – crisis or not. 

1. What Are Your Goals and Objectives?

Before you do anything else, think about what you are trying to achieve: goals, objectives or solutions to problems or opportunities. Articulate these goals clearly with specific measures wherever possible. Gain executive support by making sure they align with corporate strategy, priorities and the expectations of senior leaders.

2. Is an Employee Incentive Program the Right Solution?

Knowing your objectives, determine the best solution or intervention. If sales have fallen off, you might aim to reverse the slide. Investigate the root causes of the performance issue. For many of the reasons described above, it may be that motivation has slipped and a sales contest might provide the needed spark. However, if your salespeople are used to face-to-face sales and are struggling to adjust to new methods, training in technology and remote sales strategies might better address the problem. 

3. Goal and Performance or Behavior-Based Incentives?

If you have determined that an incentive program is the best solution, think next about what you aim to incentivize, your goals and objectives. In the example above, you might offer rewards for attracting new customers no matter how large or small. Or you might reward managers who meet engagement and retention targets for their teams. Alternatively, you might wish to encourage behaviors that lead to more sales or greater employee engagement, like learning new remote sales techniques, placing more calls, writing more proposals or making more presentations. For managers, you might reward those who invest time in listening and coaching to boost engagement. You might also combine both types of objectives into one program. For existing programs, targets and longer-term goals may need to be adjusted downward and toward the short-term given the disruption caused by the pandemic.

4. Individual or Team Rewards?

Increasingly, top performing organizations recognize that incentives and rewards should extend beyond salespeople, managers and executives. Ideally, everyone in the organization should be eligible. The potential lift from your “middle 80%” all driving incremental results versus the gain your top 10% can achieve may be significant. In most cases, firms should design a range of individual and team-based incentives, recognizing that very little is achieved in modern organizations through solo effort. Moreover, customer buying patterns have changed; the majority now research prospective solutions and vendors on the internet before ever speaking with a salesperson.[1]

Especially now as you strive to rebuild trust and engagement, extend rewards and recognition to as much of the workforce as possible. For example, consider marketing and customer service professionals and the various support people who contribute to a salesperson’s success. Think about incentives that encourage high-performance behaviors and winning cultures such as collaboration and knowledge-sharing versus others that motivate individuals to go the extra mile. You need both.

5. Tangible or Intangible Rewards?

Next, decide whether you will offer tangible rewards (e.g., gift cards, travel, merchandise, promotion, cash), recognition only (intangible rewards), or a mix of both. This depends on your objectives and the scope of achievement sought. In many cases, sincere and specific recognition of performance will suffice, and especially where workers are remote, the more the better. This might include public recognition in front of the team and/or at recognition ceremonies involving the whole organization. These events can be staged virtually and still deliver impact. Formal recognition might include notes on employees’ files and – especially now – in technology platforms that capture peer and supervisor/manager recognition no matter whether the workforce is on site or remote.

In many cases, the scope of the goal or behavior you wish to incentivize, and the level of effort required, merit tangible rewards along with recognition. Make the size or value of the incentive commensurate with the goal and effort. If the firm is struggling financially, lower the value of rewards but try to recognize people more frequently. Whatever type or types of reward you use, under promise and over deliver. Don’t exaggerate the value of your rewards and don’t underestimate the power of sincere appreciation, whether in person or virtually. 

6. Custom or Generic Rewards?

Remember that everyone is different and that employee circumstances are fluid. No one type of reward optimally motivates all people. Even when you think you know what most motivates an individual, they or their life circumstances may change as is starkly evident in the current crisis.

While the effectiveness of the reward depends in great part on its customization to the individual, you must also consider practicalities. Team rewards, for example, do not lend themselves to individual customization. Group travel rewards – when they return – should provide wide choice in activities, but can offer only one location, and in most cases, one venue. Make an effort to know your employees well and appeal to them as individuals, then consider the degree to which you can offer a wide range of choice in rewards while keeping the incentive program meaningful and targeted. Avoid complexity but let people choose the incentive or reward that most motivates them, at least to the extent possible.

7. Cash or Non-Cash Rewards?

When simply asked to choose, many people will say they prefer cash rewards. Experiments and research that delve a little deeper, however, reveal that most people actually prefer well-selected non-cash rewards.[2] Most importantly perhaps, the preponderance of evidence demonstrates that, on average, non-cash rewards drive higher effort and performance than cash rewards and lead to better business outcomes.[3] Nonetheless, in some circumstances, cash is the most appropriate reward. This may be especially true as firms recover from the pandemic, at least for employees who may need cash more than ever.

The emotional value of a non-cash reward, however, can greatly exceed its cash value provided it is well-selected and delivered. Non-cash rewards are both more memorable and drive long-term affinity. Try to find non-cash rewards that participants would not likely buy for themselves – ideally something they could not purchase as an individual. In normal times, unique travel and other experiential rewards pack tremendous emotional punch, but the pandemic has restricted these types of rewards. If experiential and travel rewards are temporarily impractical, substitute thoughtful merchandise and gift cards, delivered in exciting and memorable ways. 

Crisis times may also temporarily favor useful rewards over aspirational (i.e., luxury) ones. In normal times, try to strike a balance between reward types and offer choice. Unique non-cash rewards of all types generate buzz because, unlike cash, people talk about them – they have trophy value. The more impact a reward has on a recipient, the greater the recipient’s psychological desire to repay the kindness through greater loyalty and effort at work.[4]  

Non-cash rewards are also less likely to create expectations among employees. Cash rewards tend to blend into compensation in the minds of employees. If removed, this can cause resentment and disengagement. Psychologically, non-cash rewards are less likely to have the same effect.[5]

Finally, non-cash reward programs provide designers latitude to mix up the rewards and the communications surrounding them. It is one thing to design brochures and web pages featuring unique luxury items and experiences; quite another to promote a pile of cash or a direct deposit.

References

[1] Gartner. (2019). New B2B Buying Journey & its Implication for Sales. Gartner.

 [2] Incentive Research Foundation. (2017). Reward Presentation and Attraction: A Biometric Experiment. Incentive Research Foundation.

 [3] Incentive Research Foundation. (2011). The State of Tangible Incentive Research: the Use of Tangible Incentives. Incentive Research Foundation.

 [4] Tomohara, A., & Ohno, A. (2013). What are Relevant Work Incentive Models? Shirking Model, Gift Exchange Model, or Reciprocity Model. Journal of Labor Research, 241-252.

 [5] Aguinis, H., Joo, H., & Gottfredson, R. (2012). What monetary rewards can and cannot do: How to show employees the money. Business Horizons.