Behavior Matters!

Harnessing the power of behavioral science to improve how organizations, leaders, and people work

Category: Incentive Plans and Sales Awards (Page 2 of 3)

Repost: Expanding on Dan Pink – How to Drive Employee Motivation

Carrot - reaching for

[This article was first published in September of 2009]

It has been interesting how much attention has been paid to Dan Pink’s latest message on motivation that was presented at TED.  The number of tweets, blogs, and other messages about this have been huge.  We ourselves highlighted the speech here on this blog a couple of weeks ago (http://wp.me/pypb9-31 ).

What I find interesting and a little worrisome, is the idea that many are taking from Dan’s presentation that all incentives (or at least most) are bad.  I disagree 100% with that concept.   I would like to expand the conversation to explore why.

The debate about intrinsic vs extrinsic motivation has been going on for a long time.  The candle experiment presented by Pink was done in the 1950’s.  Deci & Ryan research from 1970’s and 1980’s suggested that extrinsic rewards can decrease intrinsic motivation.  Alfie Kohn wrote about how he thought extrinsic rewards were bad in “Punished by Rewards” in the 1990’s.   All of this research suggested a negative correlation between extrinsic rewards and intrinsic motivation.

However, that is not the only research out there!  Research based on both real life corporate performance data and academic experiments show a different side to this debate.

First, performance data from a number of sources points to an increase in performance when incentives are used.  Stajkovic and Luthans’ meta-analysis of 72 contingent based behavior programs found that money incentives increased performance by 23%, social recognition increased performance by 17%, and feedback increased performance by 10%.   BI, a performance improvement company, has shown increases of over 300% between a control group and an incentivized group in sales performance.

Those are hard numbers to ignore!

Also, Paul Hebert does a nice job of highlighting research by the International Society for Performance Improvement that indicate a 22% increase in performance for individual incentives and 44% for team based incentives – (see it here http://tiny.cc/nHfAj –  he also discusses some other arguments around Dan Pink’s message).

Second researchers have found that the way that incentives are structured has a significant impact on their performance as well as on the impact they have on intrinsic motivation.   Work by Eisenberger, Cameron and Pierce show that extrinsic rewards, if structured correctly, can actually increase intrinsic reward. They state, “The findings suggest that reward procedures requiring ill-defined or minimal performance convey task triviality, hereby decreasing intrinsic motivation. Reward procedures requiring specific high task performance convey a task’s personal or social significance, increasing intrinsic motivation.”  Specific to creativity, Eisenberger and Cameron “concluded that decremental effects of reward on intrinsic task interest occur under highly restricted, easily avoidable conditions and that positive effects of reward on generalized creativity are readily attainable by using procedures derived from behavior theory” [emphasis added].  Yet Dan Pink does not reference any of their work in his book (see here for some research articles that point to how extrinsic rewards can increase creativity: Eisenberger, Armeli, and Pretz, Eisenberger and Rhoades, and Eisenberger, Cameron and Pierce)

In our own work, we’ve seen that when individuals are given a choice in choosing levels of goals and subsequent rewards, they have an increased motivation to choose (and achieve) higher goals than what management would have given them.

That being said, Dan Pink has gotten the discussion flowing on this – which I think is very good.  He has also highlighted the fact that most organizations only see one lever to pull when trying to impact employee motivation – i.e. pay systems. As he points out, there are other aspects that influence employee’s motivation.  This is vital.  To improve performance, creativity, and accountability businesses need to look at more than just rewards!  I hope that this will help expand the use of other motivators!

Dan talks about Autonomy, Mastery and Purpose – these fit right into the Four Drive Model of Employee Motivation.  Autonomy and Mastery align with our Drive to Challenge and Comprehend, while purpose fit nicely with the Drive to Defend.  What Dan leaves out is the power that the Drive to Bond has on motivating employees.

Overall, I think the discussion that will result from Dan’s presentation is great, I just hope that it doesn’t get boiled down to the simple sound bite that “incentives are bad.”

UPDATE APRIL 1, 2011

Let’s start with the positive: Dan’s book has done very well and has helped focus people on the the need for looking beyond the pay system to help drive motivation throughout the business.  This is a very, very positive impact.

Now for the bad: the mantra that “incentives are bad” has been one of the larger themes to arise from the success of his book.  This is not a positive impact.   It has led to a number of non-experts jumping on the bandwagon expounding their personal belief that all pay-for-performance measures should be gotten rid of.  That incentives themselves are bad.  And that people will be 100% fully motivated if we can just figure out how to make jobs more autonomous, provide mastery and have a purpose.  Of course, this doesn’t really account for a lot of what really happens in the world as we know it.

Moving forward, I would like to propose that the discussion around this topic is good – as long as we look at all the research and at how incentives should / should not be used.  We need to look at all the tools in our tool belt – that includes things such as Mastery, Autonomy and Purpose – but also includes other things like rewards.

Let me know your thoughts – click on the comment section below!

Kurt

The addicting power of incentives

Paul Hebert, one of the great bloggers out there and generally all around good guy (@incentintel on twitter and www.121-align.com his website) wrote a piece for Fistful of Talent that looked at how incentives release dopamine in the brain – just like drugs do.  He based much of this article off of a paper that I wrote a few years back (find it here).

First off, I was pleased that he utilized my paper as a starting point for his article.

Second, he brings up an interesting concept – are we addicted to incentives and if so, what are the consequences of that?  I had not thought about it in that way.

I encourage you to read the article and follow the comments – which are fantastic (read here at Fistful of Talent)

I will have more to say on this later this week, but wanted to get everyone to go out and read Paul’s piece first.

Thanks.

Kurt

 

The lost art of sales incentive communication

“The new compensation plan is only as good as the sales representative’s understanding and acceptance of the plan.”

This quote is from the December 2010 issue of World at Work’s Workspan journal.  I found it very familiar as we’ve been using the following line in our proposals since 2003 “You can have the best incentive plan in the world, but it doesn’t make a difference if your people don’t understand it or buy into it.”

I believe this with all my heart.

In fact, much of our business is built around this belief.  We work with many of our clients creating communications campaigns that drive understanding and help build buy-in to their incentive plans. We tend to think about this in a holistic way with many touch points along the way.  We don’t just craft a cool looking brochure and leave it at that. Our ideal process involves upfront analysis with interviews of participants and managers to better understand how the current plan is perceived and used.  This analysis also provides us with much needed information as to some of the barriers that we will face in trying to communicate the plan.  Then we need to think about how to break through the deluge of information that a typical sales representative is bombarded with.  We also work very hard at trying to craft words and visuals that explain the incentive plan in a very easy to understand manner – crafting multiple messages, charts and images.   The overall flow needs to be right or the impact is lost.  It is important to understand what medium the message is going to be presented in and where it comes in the continuum of communication touch points – is it the first message that is intended to generate excitement in a flash e-mail; the main presentation at the National meeting that needs to show how a sales rep can maximize their payout with this plan; or the detailed plan books that are the legal documents that contain all the minutia that an incentive plan has?    We then look at follow-up interviews and focus groups  to make sure the message got through and that we didn’t miss anything.  Throughout the year we want to communicate to the field using quick reminders and little teasers to keep the plan top of mind.

It is both an art and a science.

Which gets us to the title of this post. 

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Repost: We are NOT rational beings so why do we try to make rational incentive programs?

Take the blndfolds offTake off our rational blindfolds…

Dan Airely, Richard Thaley, Cass Sunstein, Daniel Kahneman, Ran Kivitz, and many more psychology and behavioral economics  researchers have shown that while we like to think of ourselves as rational, thinking human beings who are out to optimize our well being, we aren’t.

In fact, we are very far from it.

Sharon Begley at Newsweek wrote this interesting blog “The Limits of Reason” in it, she states, “But as psychologists have been documenting since the 1960s, humans are really, really bad at reasoning. It’s not just that we follow our emotions so often, in contexts from voting to ethics. No, even when we intend to deploy the full force of our rational faculties, we are often as ineffectual as eunuchs at an orgy.”

We see this all the time.  I wrote about it in my earlier post from today “5 Lessons from the Maze.”  We tend to act and behave in very non-rational ways.  There are lots of irrational types of behavior and thinking and lots of theory’s about them (i.e., Loss Aversion, Status Quo Bias, Gambler’s Fallacy, Hedonistic Bias, Anchoring, Reciprocity, Inequity Aversion, etc…).

Here is what is interesting – we tend to still design our incentive programs and our motivational strategies based on believing that people act in a rational manner. We create programs that have 10 different ways to earn, with multipliers, qualifiers, and ratchet effects.  We create programs with multiple components and factors that we think will drive specific behaviors and elicit particular performance results.  We believe we know what people want and use only extrinsic rewards to drive our results.

Ouch!

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Could your organization survive without incentives?

Here is an interesting thought experiment…

What would happen tomorrow if you removed all of the extrinsic incentives from your organization today?

Think about it.  Would your company grind to a halt?  Would it go on as if nothing had happened?  Would it limp on, not fully grinding to a halt, but maybe not at full speed?  Would it burst its seems?

What do you think would happen?

[polldaddy poll=4367556]

You have more than me! Thoughts on fairness and 4 ways to make it better.

by Timblair

My four year old son was playing trains downstairs with two of his friends last week.  It was going great until one of the friends somehow ended up with 5 train cars while my son only had 4.  This sent my four year old into a tizzy in which he stomped out of the room and sulked on the floor in the kitchen.

“He has more than me.” was the response I got when I asked him what was wrong.

So trying to think quickly and forgetting that I was dealing with a four year old, I asked him if he had been having fun playing with four trains before he realized that his friend had five?  “Yes…but it’s not fair.  He won’t share and he has more.

My equally “way-too-old” for a four year old response was, “but right now you have none – which is more fun, playing with four or playing with none?” I thought I had him here….

He looked at me with a quizzical stare and held up his hand with all five fingers out – “Five!” he said in response with 100% conviction.  Ahh yes, I’m dealing with a four year old mind.

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Awareness – how easy it is too not see

Yesterday I wrote about how we are not rational.  Today, we look at how sometimes we don’t even see things that are right in front of our eyes!  Take a look.

http://www.youtube.com/watch?v=2cd63P54PaIV

Did you see the bear the first time?  I know when I first did this test, I didn’t.  How long did it take you to notice the changes in the 2nd video?  I didn’t catch it until about 3/4 the way through and I was looking for it.

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The Story vs. The Analyst: How good communication gets ruined!

The largest part of our business is developing communications for sales incentive plans.  We create presentations, develop plan books, and design flash and other forms of communication. We got into this work by accident (one client many years ago asked us to create a “meeting in a box” for his IC plan – the rest, as they say, is history), but now we embrace it and have carved out a niche.  That niche is taking highly analytical and dry plan data and making it more interesting, more engaging, and more motivating for the sales representative.  Over the past 10 years we have done just this for thousands of plans and hundreds of thousands of participants.

We strive to tell a visual and emotive story with our work.  We work hard at capturing the vital information that is important to a sales person and making that information understandable and engaging.  I like to think we do a good job – when our clients allow us to.  You see, telling a story about incentive compensation and creating captivating visuals to convey that information isn’t easy.  It requires that we make choices about what information we share.  It means that we may have to simplify the message.  It may mean changing how we present and what types of communication that we use.  This, for some clients, is easier said than done.

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Sales Motivation using the 4-Drive Model

Salespeople who are engaged in their roles, who are motivated to succeed, and who’s goals are aligned with the organizational goals have been shown to have a significant impact on helping an organization succeed (Badovick, Hadaway, & Kaminski, 1992). Successful organizations understand this and try to keep their sales employees motivated and engaged through a variety of motivational methods – mostly involving extrinsic rewards.

While much has been much written about how extrinsic rewards may have a detrimental effect of on a sales person’s intrinsic motivation (Deci & Ryan, Kohn, or Pink – note: there is also a lot of research on how this extrinsic/intrinsic effect can be mitigated) there is little disagreement on the short-term impact that extrinsic rewards can have on a company’s performance . The short-term benefit of extrinsic rewards assures us that these rewards will be used in businesses no matter what Dan Pink has to say on the topic.   However, this does not mean that these types of programs can’t be improved.

Successful organizations and leaders of the future not only need to focus on the optimization of extrinsic reward programs but also on moving other levers within the organization that can drive sales motivation.  Using the Four-Drive Model of Employee Motivation (Lawrence and Nohria, 2002) provides a clear framework for how to do this.

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Amazon exiting the incentive game

The end of the game

So Amazon is leaving the incentive market which they just entered three years ago.  From all reports it isn’t because the venture isn’t profitable, but instead it is about ensuring that their brand and their customer service reputation are not sullied.  Paul Hebert in his blog wrote,the decision was made to drop fulfillment through incentive programs due to customer service issues.  Specifically, the recipient, if they had problems with their order, would call Amazon for resolution but Amazon would have to refer them back to the incentive company – who in turn would do the due diligence to fix the problem.  From Amazon’s point of view this created a negative impression of their customer service.” In a nutshell, they are taking a hit on millions of $ to make sure there is no negative impact on the billions of $ that they do in their non-incentive business.  In my mind, that is a pretty smart move (one that you wouldn’t see a lot of businesses making).  Now I’m sure there are other factors (i.e., tax issues, not controlling the customer relationship, etc…).  Nothing is ever quite as black and white as it seems.

In the short time that Amazon was in the market, they shook it up.  They offered a new way of fulfilling incentive program offerings.  With their great number of items, their back end processing and handling, drop ship expertise, and their low price points, Amazon was able to provide even the smallest incentive companies with a very sophisticated e-catalog of incentive goods.  No longer did an incentive house need to have the large capital expense of a warehouse and stocking products.  Amazon was able to provide the back-end seamlessly for a price that couldn’t be beat.

Playing against Amazon

I was part of a large pitch (as a partner with a traditional incentive house)  last fall to a company that loved what we did, trusted our customer service, thought that our creative approach was the best and liked the way we brought behavioral science into the process (i.e., The Lantern Group) – but, ended up going with a different company because they could offer more merchandise at a lower cost point.  How did that other company do it – they used Amazon as their fulfillment partner.  At that point, I thought I saw the writing on the wall – that the days of making large margins on merchandise were all but over.  How could the traditional companies compete, when smaller, more nimble and aggressive firms could come in and under-price while having a larger item selection and great fulfillment services.  In the debrief with the company about why we lost the business, the purchasing agent said, “…this is the wave of the future, all [incentive] companies should be doing this.”   It was going to be a new world – and I was excited!

Changing the game

For years the pricing model used by incentive companies has been margin based.  While there is nothing wrong with this conceptually, it does create an interesting dynamic.  Merchandise is the cash cow for these companies.  Without this, many of the companies will fail.  There is an underlying need to get people “into the warehouse.”  When I started my career (many eons ago) I was naive enough to think that when I was hired on at one of these incentive companies that I was going to work for a consulting firm that was trying to find the best way to motivate and engage employees.  What I found out was they were all for that – as long as the way to do motivate and engage led through the warehouse (I’m exaggerating a little here for emphasis, but there was an underlying culture of this).

While that culture has shifted slightly over the years, it is still present in the industry.   If Amazon was going to be able to undercut prices because of their buying power – then incentive companies were going to be forced to change their model.  This would mean finding other ways to make money – which would lead them to finding other ways to increase motivation.  The benefit would have been that these companies would have created a larger toolbox with more tools and thus not fall to the old idiom “when you only have a hammer, every problem looks like a nail.”   This would mean better solutions to motivation problems.

The next competitor

While Amazon might be leaving, they showed that there was a desire in the marketplace for something like this.  I don’t think there is another company right now that could fill that role, but that doesn’t mean in the future there couldn’t be.  So, with that in mind, it is important to think about the next game.  What will this mean for the traditional incentive houses, for the mid or small sized performance improvement firms?  Will someone take that bold step to change the game and bring in a different set of plays and players or will they exhale a deep breathe, thankful the other team forfeited, and go back to their old ways of playing?  Right now, we’ll just have to wait and see…

Please share your thoughts and rants on this…would love to get a nice dialogue going.

Kurt

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