Tag: Extrinsic Reward (Page 1 of 2)

Improving performance in uncertain times using non-cash incentives

Change creates an emotional response

Even in the best of times, companies experience different competitive and environmental factors that can lead to organizational change and thus employee uncertainty. In hard economic times, those changes occur at a much greater pace and employee uncertainty can be even greater.   Employee uncertainty creates a number of challenges for organizations as employees often feel anxious, disillusionment, disappointment, confusion, and even anger over their lack of control in an unknown situation.  This often leads to decreased employee motivation, focus and subsequent decreases in productivity and performance.

Companies can employ a number of different mechanisms to help recharge employee motivation in changing environments.  One key mechanism is the use of targeted incentives to help engage employees and focus them on improving productivity.  Because incentives can be structured in a number of different ways and use a variety of reward options, it is important to understand what aspects of incentives will drive the greatest return given the uncertainty and emotional response that is felt by employees during these organizational shifts.

Understanding the psychological response:

The emotional response of individuals to potential negative changes is theorized to go through a process similar to grief.  The Kubler-Ross Reaction to Change[i] cycle shows how employees typically flow through recognized stages when faced with change.

Kubler Ross Change

Initial denial is followed by resistance, then a period of self-doubt and worry, followed by a time of letting go, with acceptance of the change and exploration of options, and finally moving to new commitment and focus.  This is an emotionally charged process that requires time to respond to change.

Organizations need to be able to manage this process and move people through these stages as quickly as possible.  The engagement of the emotional elements of the brain is vital to being able to achieve this. During the high stress, denial and resistance stages, our brains do not process rational arguments as easily or readily as they usually do.  In order to gain a foothold in this emotional cauldron, incentives need to have an emotional hook.  Non-cash incentives achieve this hook through a variety of behavioral economic principles.  First, they provide hedonic luxury escape which is about being able to remove yourself from the current state and imagine yourself with a luxury item or good[ii].  Second, they activate different sectors of the brain associated with visualization (i.e., right hemisphere brain functions) versus the more rational sectors associated with transactions (i.e., money and left hemisphere brain functions)[iii].  Third, non-cash elements do not push employees into a calculative modality in which they equate effort with monetary amounts.  In stressful situations, this calculation is short-changed and often interpreted as “they are trying to bribe me.”  Non-cash awards are evaluated as a separate, non-financial component that is viewed in isolation and not in factors that are associated with other compensation factors.[iv]

Examples:

Many organizations have utilized non-cash incentives in periods of uncertainty and change.  The following are just a few examples of these incentives and the results that they generated.

Y2K Angst

A technology firm out of Des Moines, Iowa was experiencing high levels of turnover and angst with its software programmers because of the uncertainty surrounding Y2K and how their jobs were going to be negatively impacted.   A non-cash incentive program aimed at achieving specific Y2K milestones was implemented across the organization.  AwardperQs (a non-cash point system) were awarded to individuals and teams that achieved specific milestones.   This program provided clear focus and motivation for the software programmers and achieved in excess of 90% of employees engaged/ participating/hitting one or more milestones.

Sales Force Integration

A leading medical technology company was moving from a product-centered sales philosophy to a customer-centric team approach.  This involved a realignment and adjustment to the sales force that created significant uncertainty in the field about their jobs and roles.  A six-month incentive program was developed that rewarded people for sales that required integration of two or more product groups.  A fixed award pool created a sense of urgency and engagement in the incentive.  The client realized a return of more than 300:1 on this program.

Realignment

A pharmaceutical firm was going through a major realignment of territories and product allocation due to a large product soon to come off of patent.  Many sales representatives had new managers, new doctors and new products that they needed to work with.  A short-term team based award was put in place that offered teams the chance to earn from selected merchandise if they were in the top 20% of districts across the nation.  Quota achievement across the division came in above the stretch goal, even with the distraction of realignment.

Other Factors

Obviously there are other factors that influence how quickly organizations move their employees through angst to engagement in situations that are stressful or uncertain.  While this paper does not expand upon those, two key factors that relate to incentives include:

  • Incentives should be short-term to allow for readily available goal progress particularly when dealing with uncertainty.  By providing short-term incentives and tracking to that, individuals will achieve a sense of progression towards goal which increases the perception of certainty in the program.
  • Communication is key.  Incentives cannot be viewed of as a bribe or they will be summarily dismissed.  The tone and narrative of the communication needs to be set up to have the most positive impact and create a separate interaction with the incentives that sets it as different from the cause of the uncertainty.

 


[i] Kübler-Ross, E. (2005) On Grief and Grieving: Finding the Meaning of Grief Through the Five Stages of Loss, Simon & Schuster Ltd.

[ii] Kivetz, R. (2010) Rewards Hierarchy and Hedonic Luxury, presentation at BIW Forum

[iii] Jeffrey, S., (2006) Cash or Hawaii: The benefits of tangible non-monetary incentives, dissertation

[iv] Jeffrey, S., (2008) The benefits of tangible non-monetary incentives, Incentive Research Foundation

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

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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Rethinking the 4-Drive Model of Employee Motivation

I have been touting the 4-Drive Model of Employee Motivation since I first read the 2008 Harvard Business Review article “Employee Motivation: A Powerful New Model” by  Nohria, , Groysberg, and Lee.   It is a powerful theory on human motivation in general, and in particular, employee motivation.  First presented in the 2002 book, “Driven: How Human Nature Shapes Our Choices” by Lawrence and Nohria, the model outlines four main drives of motivation.

At the Lantern Group, we’ve been working with this model for almost three years now.  We’ve posted on it several times in this blog (see 4-Drive Model here, Impact on Leaders here, and other info here, here, here, here and here for just a few examples).

It’s  good – but not perfect.

Right away we realized that it needed to be tweaked.

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How Well Does Your Organization Stack Up? Guest blog by Paul Schoening

As the hiring outlook improves with anticipation of the new calendar year on the horizon, election dust settling and corporate tax liability gaining clarity, the talent exodus will begin in next few months.

Are you ready?

If your organization has not installed proactive mitigation efforts, you could lose your best talent over the next 2 quarters (in other words, if your not doing something now, you’re going to pay for it later).  Successful recession recovery strategy should not ignore the critical variable of having the best talent on-board as well as engaging the “survivors”, lest ye not forget;

“High-commitment organizations outperform low-commitment organizations by 47%”

Watson Wyatt

“Engaged  employees are 43% more productive.”

The Hay Group

Our research shows that engaged employees can increase your financial position by almost 200% while disengaged employees can decrease your financial position by almost 25%.

http://www.globalstrategicmgmt.com/engaged- employees.

“In high-growth organizations, 84% of employees know where the organization is headed. In low-growth organizations, only 52% do.”

In Momentum

“Dependence  on remote forms of communication has left many younger workers bereft of interpersonal skills.:

Fast Company

“Camaraderie  between co-workers fuels much more than new business leads – relationships are also key drivers for recruiting, engagement and retention.”

Talent Management Magazine

Must we go on with the quotes? These are some pretty credible sources I might add.

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Why I Hate Training Wheels

Riding a bike

My 4-year old son just got his bike a few weeks ago.  He is in heaven.  Ask him what his favorite thing in the world to do is, and he will tell you, “Ride my bike!”  He wants to ride it everywhere…which is fantastic. He is definitely motivated!

I have one problem…he won’t ride it without training wheels.

We tried.  The first four days I was out with him every day, running up and down the sidewalk, holding on to the bike as he peddled.  But he was too scared.  He would stop peddling anytime the bike tilted.  He would always look back to make sure I was there (which caused him to turn the wheel and tilt the bike to one side and then stop peddling).  He would stop and say he wanted to go slower.

And the problem was he was actually doing a good job riding on his own.  He was able to go a fair way with me just running beside him and not supporting the bike.  I would let go and he would be riding just fine.

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3 Tips to Increase the Drive to Challenge & Comprehend

Challenge The 4-Drive Model of Employee Motivation’s 3rd drive is the Drive to Challenge and Comprehend.   The drive focuses on our innate desire to learn more about the world around us and to not be bored.

I like to call this the “4-year old drive.”

If you’ve ever tried to get a 4-year old dressed quickly, you know what I mean – they want to do it themselves.  It is the challenge of being able to button their shirt or put on their own shoes that they are striving for.  Or think about a 4-year old sitting at dinner with a group of adults who are talking (i.e., boring) and think of the trouble that they get themselves into trying to add some excitement (or learn something new).  For instance, my 4-year old was bored and decided to see what meatballs in a glass of milk would taste like…you see what I mean.

So here are three tips to help increase the C drive:

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Unmotivated and staying that way

Are there certain people who just can’t be motivated?  Are there Wally’s who render the motivation fairy powerless?  While I would like to believe that isn’t the case, I have to wonder…

Motivation is Personal

One of the core beliefs that I have is that motivation is very personal.  People are individuals with different motivational triggers and drives.  While there are basic underlying motivational drives (see 4-Drive Model), those drives impact each of us differently and create a unique motivational profile.

This implies that if one can understand that motivational profile of a person, one should be able to understand what to do to motivate them…right?

That is the implication…however I believe reality is a little different.

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The 4-Drives and Motivation at Oak Ridge Hotel & Conference Center

A few weeks ago Susan and I spent the day interviewing 11 employees at Oak Ridge Hotel & Conference Center  in Chaska, MN (see Oak Ridge Part 1 here).  We had observed that Oak Ridge had “gotten the formula right on employee motivation” and wanted to probe more to find out how.  From our original findings, we highlighted five things that stood out: 1) leadership counts, 2) It is not about the money, 3) It is about the team, 4) Genuine recognition rejuvenates and 5) It is all about appreciating people.  I’m taking a different approach this time, looking at it from the 4-Drive Model and seeing how each of the drives showed up in the 11 interviews.

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Let’s get sales incentives right

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) 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 Alfie Kohn or Dan Pink has to say on the topic.

It is important then that we get sales incentives right.  We need to ensure that as leaders, we are not limited in our thinking about how we can structure sales incentives and how they operate.   We must look at optimizing how our incentive plans are designed, the type of reward that is offered, and how goals are set.

Extrinsic Reward Program Structure

There is a very clear framework, based on the research that suggests that extrinsic reward programs should be designed such that the rewards are contingent on achieving increasing performance goals.  By doing this, companies not only limit the negative impact that extrinsic rewards can have an intrinsic motivation, they also increase the actual performance that extrinsic rewards drive.  This means that the use of non-contingent incentive rewards should be limited.  It means that incentive plans that are strictly “do this – get that” are not optimal.  Contests that rank people against one another also are not optimal as they only provide feedback that the sales person did better than the others – not against a goal.

Extrinsic Reward Type

The typical reward for performance is usually cash.  When surveyed, over 70% of sales people indicate that they would prefer cash.  However, there have been studies that show non-cash rewards (i.e., trips, merchandise) have a bigger impact on performance than cash alone.  This does not mean that one would replace their annual sales incentive programs cash bonus with rewards of trips and tv’s – but it does mean there should probably be a mix.  It should also be noted, that sometimes extrinsic rewards are based on fulfilling the drive for Achievement and as such, do not require significant outlays of dollars – recognition of performance by senior leaders can be a significant motivator for sales people.

Goal Setting

A majority of sales incentive plans have goals that are provided to individuals.  Goals are good – they have been shown to increase performance across a myriad of environments (see Locke and Lathum).  However, we’ve seen significant backlash against goals when they are not understood or felt to be so out of reach as to be laughable.  The negative impact of this can outweigh any positive motivation that you get from the incentives.  Goals must be understood and bought into (i.e., perceived as fair) to be effective.  There are a number of ways that companies can do this, but they often require changing systems and processes that have been in place for years.  The key is to get the setting of individual sales goals to be as close to the sales representatives as possible, while still ensuring that they align with the company sales objectives.  The science (or art) of this can be very daunting – but trust me, I’ve seen it done.  One simple way to help is to provide a means for front-level managers to effectively shift quota from one territory to another but provide mechanisms to ensure fairness.

Of course extrinsic rewards are just one piece of the motivational puzzle and shouldn’t be used as the only lever to drive motivation and engagement.  The key is to ensure that the incentives are right and that they do not detract from the other methods of motivation.

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