Category: Incentive Compensation Page 2 of 5
I had a client send me an e-mail the other day – with this question – “Whose job is it to motivate?” Here is the response that I sent her…
“Whose job is it to motivate?
This was an interesting question – one that, at first glance, seemed like it could be quickly answered if I did not spend too much time thinking about it. So I spent some time thinking on it…and like the proverbial onion, it has many layers.
A quick response would be that it is the manager’s job to motivate. They are in charge of their team of people and one of the responsibilities that they have is to make sure that their team is doing their job. You get people to do their job by motivating them. As a manager, you are likely to be in control of many of the motivational levers that organizations typically use, such as performance ratings, incentive components, special role assignments, recognition and a host of other tools that are designed to help motivate employees. As a manager, you are often the closest link to the organization that employees have – as such, you are key to ensuring that they know the strategy and vision for the company.
So the job of motivating is the managers….
Except that when you peel away another layer, and ask the question, “can a manager really motivate his or her employees?” This comes down to a theoretical question about our ability or lack of ability to really motivate another person? Sure, you can motivate through fear and intimidation, but those are not typically the types of motivational forces that we think of when we think of a manager (outside of the threat of firing). The question is revolves around the idea of having someone else motivate me or do I need to motivate myself. You can put all of the rewards and accolades in front of me, but if I choose not to be motivated by that, then is there anything that you can do to motivate me?
Think about this in another way as a hypothetical question – what would motivate you to bring great physical harm to another person? Would any amount of money sway you to do that? Would any type of promotion or praise get you to do this? Probably not. You would have to have an intrinsic motivation to be able to do this (if even that would suffice for many people).
If we go down this path, then motivation is self-derived and is ultimately the job of the employee…
However, you peel away another layer and look at the role that our environment plays in our behavior and attitudes. For instance, we know that people eat more when their plate is larger – even if they are not motivated to do so, or more ominously, motivated to not eat more (i.e., on a diet). It has been shown that the work environment that we are in can have a significant impact on our attitudes and ultimately our performance. We know that people’s behavior is changed when they are presented with an incentive or reward for doing something. Studies, as well as our own experience, show that we will work longer, harder and more tenaciously if we know that there will be a luxurious reward as the result of our effort. This points to the fact that a company’s leadership and the culture, environment, systems and processes that they develop are key to motivation.
Taking that line of thought, it is leadership’s job to motivate…
Except they do not often have an immediate presence or interaction with the employees. That is relegated to the manager and how those systems, environments and culture are interpreted often relies on their actual practice of them…so we are back to the manager…and to the individual…
Ultimately, it comes down to a combination of all three. That the job of motivating is everyone’s job.
This is not a simple matter to say that “motivation” falls within someone’s job description…it is indeed a larger issue that has its roots in so much of what everyone in the company does every day. We know that employees are complex individuals. That each of us is driven by different needs and different goals. The Four Drive Model helps us put those drives into categories, but those drives are still hugely complex in their nature, and that it takes a large amount of effort by the company, managers and individuals to really motivate us to our fullest potential.
Ok – hope I didn’t get too long winded or philosophical and that this was insightful to you…
Let me know if you have further questions.
Kurt Nelson, PhD.”
So on Friday night, around 7:00 PM, I will board a plane and fly for over 20 hours to Kuala Lumpur, Malaysia to conduct a workshop on Sales Incentive Management for a group of various executives from around southern Asia whom I’ve never met and the only interaction I’ve had with the organizers is via e-mail.
And no…I did not wire them any money in advance. In fact, they wired me money.
The saga began back in December 19th when I was busy with a number of other programs. Going through my e-mail quickly, there was one that almost got put in the trash immediately “Trainer invite for Sale Compensation Management.” It started out, “Dear Mr. Nelson, Good day to you. We are pleased to formally invite you, on behalf of UNI Strategic, to be the trainer four our 2 day training on Sales Compensation Management…” It went on to talk about what they wanted and how they “specialize in the provision of business-to-business intelligence.” It was signed by Ramesh, Conference Producer.
Yeah – I thought it was spam as well.
Behavioral based incentives (incentives that recognize behaviors and actions instead of results) can be very powerful motivators inside of a company’s overall reward framework. In many instances, behavioral based incentives are the only way that an organization can recognize employees for work that is vital to their success. This includes times when outcomes cannot be effectively measured, where outcomes are not immediately contingent on individual contributions, and where there may be ethical or legal components that prohibit outcome based rewards. Research also suggests that behavior based incentives can be advantageous to the organization in a number of ways including but not limited to: the ability to reward long-term behaviors that will not have a short-term payoff, improve fairness of recognition due to inequities in the market place, provide more focus on soft-skills necessary to long-term success, and help drive non-sales activities that are desirable by the organization (Anderson & Oliver, 1987 & 1994; Baker, Jensen and Murphy, 2012).
While behavior based incentives can be very powerful motivators, they also can have a negative impact on overall moral and motivation if not properly implemented. There are a number of potential pitfalls with how
Some Potential Roadblocks:
Ambiguous measurement / Perception of fairness: Behavior based rewards often have ambiguous qualitative rating processes which can result in different interpretations of the same behavior or action. In other words, one person might feel that they are exhibiting exactly the right behaviors while another would view those same behaviors as poor or unsatisfactory. This dual interpretation can lead to individuals feeling as if they are being unfairly measured. Research by Meyer has shown that 58 percent of employees rated their own performance as being in the top 10 percent of their peers and that 81 percent rated themselves in the top 20 percent while less than 2% of the people rated themselves below the median.
Lack of Trust: Individuals often state a lack of trust in both the organization and in their manager to effectively be able to assess their performance. Often this is related to the perception of fairness listed above, but many times this is also the result of lack of understanding on the incentive process.
Short time horizon vs long term impact: Behavior based incentives are powerful motivators, in part, because individuals can be rewarded shortly after they exhibit the desired behavior, thus reinforcing that behavior. This short-term focus however, does not always correlate to long-term success. Thus behaviors often revert back to the status quo once the incentive is removed.
Gaming the system: as in any incentive scheme, behavior based incentives can be gamed. Participants might act differently when they know they are being observed by their manager or otherwise try to create a false impression of their behaviors.
Some Best Practices:
Specificity: There needs to be a very clear definition of what is being measured and how it is being rated. This specificity needs to be clearly understood by both the participant and the manager. While this does not imply that there cannot be qualitative judgments made about an individual’s behavior, it does mean that the manner in which those judgments are determined needs to be transparent and agreed to in advance. This requires significant investment prior to implementation to fully identify, define, communicate, train, and create tools to ensure full understanding.
Leaders should ensure that they have fully invested in the measurement process and communication of the behavior measures. This includes:
- Clear definitions around behavior expectations
- Behavior examples that are used as illustrations for expected behaviors
- Training campaign for managers on both “how to” measure as well as “how to” communicate their rating (provide feedback)
- Communication campaign that clearly and succinctly highlights expectations and outcomes
If there are quantifiable elements (that are relevant and valid) that can be included as part of the overall measurement process, these should be included – even if they are used as back-up or reference components and not directly tied to the payout.
Measurement process calibrated across managers: Key to success is the consistent rating of individuals across managers. Top organizations ensure that there is training on how to measure, but also do periodic check-ins to ensure that the measurement process is calibrated (i.e., that managers are giving similar ratings for similar behaviors). Note, this is not a calibration of ratings at the end of a quarter or period, but a review of processes and feedback for the managers for how they can be consistent to the norm.
Milestone check-ins with long-term bonuses: Behavioral economics shows that individuals place higher value on relatively smaller rewards that are achieved in near term over larger rewards that require longer time horizons. Motivational research shows that near term rewards can drive quick uptake on behaviors, but does not correlate to long term behavioral change. However, incentives with longer time horizons have been shown to drive more long term behavior adoption. Combining these factors, best companies have used a process whereby they have a long-term bonus kicker with short-term milestone check-ins. Often, short-term check-ins are done as on-the-spot rewards given by managers from specific discretionary budgets for this purpose.
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.
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]
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.
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.
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.
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
I’m consulting with a 12 Billion dollar sales division of a Fortune 500 company regarding the future of their reward and recognition system. Without going into much detail, they are trying to take a strategic approach to how they can improve the effectiveness of their reward programs. As part of this process, we are using the 4-Drive Theory as a model to help guide how we build this system.
As one can imagine, the organization’s current reward and recognition programs rely heavily on the Drive to Acquire & Achieve. By far, this was the predominant focus for over 90% of the components. Additionally, our research showed that the current system has a number of legacy programs and other recognition items that are no longer strategically aligned with the organizational mission.
There are a number of ways that a reward system can be developed. We aligned on developing a system that would tap into all four of the drives and focus on motivating actions on three specific sales behaviors. With this in mind, we wanted to create a framework that would leverage various reward and recognition components. That framework is shown below:
Within each of these four components could be a number of different programs that would be focused on driving one or more of the desired behaviors. We also identified that while any of the components could activate any of the four motivational drives, that particular drives would be more readily activated by programs within specific components. We’ve mapped this below:
So while both the incentive compensation and the non-cash components easily activated the drives to acquire and challenge, group trips and other recognition were more likely to tap into the drives to bond and defend. This provided us with a framework to think about how we could leverage all four drives with various reward and recognition programs.
While this is a high level perspective, it does provide a company with way to think strategically about their reward and recognition system that aligns it with the 4-Drive Model. We were able to map out specific programs within this framework that provided both a means for effectively driving behavior as well as leveraging all four drives.
To our knowledge, this framework has not been used previously within a large company. We are very excited about how this is being applied and the impact that it will have.
Please let us know if you have any questions or thoughts by leaving a comment below. Thanks.
A recent post on PsyBlog outlines the distinct difference in performance between people who “fantasize” about future success and those who “expect” future success. The blog article was based on research by Oettingen and Mayer (2002) in which they concluded, “Positive expectations (judging a desired future as likely) predicted high effort and successful performance, but the reverse was true for positive fantasies (experiencing one’s thoughts and mental images about a desired future positively).”
The PsyBlog article explains the difference between expectations and fantasies as follows: “Expectations are based on past experiences. You expect to do well in an exam because you’ve done well in previous exams, you expect to meet another partner because you managed to meet your last partner, and so on” while “fantasies, though, involve imagining something you hope will happen in the future, but experiencing it right now.” The difference might seem small, but in fact, had a big difference in outcome. People who had high expectations about finding a job did much better in actually finding a job than those who just fantasized about finding a job. See more results here.
Which leads us to our potential problem with incentive programs.
Do we end up communicating to everyone that they can achieve the highest payout or reward? If we do, then does that lead to fantasizing about the reward instead of expecting the reward? I’m not sure.
On one hand, I know that in the communication work that we do, we typically use examples and highlight top earners – the ones who achieve in the top 10% of participants. How does that communication play with the 50% of participants who are in the bottom half of earnings and probably will not achieve that level of success? We show pictures of what people can buy with their earnings – a new boat, travel to a tropical island, new coach bags, a 62 inch t.v. Are we inadvertently leading these people to fantasize about what they can do with that extra $20,000 when they don’t have the history to expect that they’ll ever earn it?
Companies often use annual reward trips, short-term contests or non-cash incentives that reward the top 5% or 10% of performers – do these by their nature create a split between those who expect to earn them and those that just fantasize about earning them? Does this then lead to poorer performance by those who just fantasize about winning them with no real expectation of actually winning?
This is just one study, but it resonates with other information on this subject from Locke and Lathum; Badovick, Hadaway, & Kaminski; and Bandura to name a few. So what does it all mean?
Are there solutions for this besides just chucking the entire incentive system out the door?
Of course. When we take a holistic approach and think about this differently.
A few ideas that would help include:
- When communicating incentive plans, make sure that you provide examples of what average performers can earn as well as top performers.
- Highlight realistic increases in performance when using now and then comparisons – don’t make the growth so great that it seems unrealistic.
- Communicate specific actions that people can do to achieve the desired performance level.
- Make sure that you have opportunities for people to earn something at various levels of overall performance. Don’t just reward the top 10%. Hang a carrot out there for people in the bottom 50%.
- Utilize tiers when creating contests or incentives if there are large differences in average territory size / market share / potential.
- Include different measures – not just top line sales (e.g., % growth, new account growth, market share, etc).
- Offer opportunity for sales people to self-select their goals (within specific guidelines) and provide different rewards for them based on the goal they pick. For instance, you could say, if you pick a 3% growth goal you earn $X, if you pick a 5% growth goal you earn $XX, and if you pick a 8% growth goal you earn $XXXX.
While we all like to dream, we might need to ensure that our incentive programs offer a little more grounding.
So what do you think – is this all just ivory tower research that has no application in the real world, or is it something that we need to take into consideration? Let us know your thoughts and leave a comment.
A few weeks ago a number of factors all convened so that I spent 5 days playing 99 holes of golf (see here). It was fun, but I’m ok if I don’t hold a golf club in my hands for a little while.
Let’s preface by stating that I’m not an avid golfer nor am I a very good golfer. I’m average. I usually get out 3 to 4 times a year. I can talk the talk, I do some things well, and others not so well. One of the things that I was doing well during those five days was hitting my 9-iron.
And I was hitting it well.
On a pretty consistent basis I was hitting the ball between 140 and 170 yards with my 9-iron – and they were mostly straight (which is a big deal for me). And once* I put one out there about 185 yards (*it was downhill and the wind was behind me). Put this in perspective, according to Brent Kelly at About.com the average men’s 9-iron distance is between 95 and 135 yards. You would need to move up to a 5-iron to reach the average distance I was getting with my nine.
Of course I was hitting most of my other clubs poorly. I’d top my driver and it would bounce out 30 yards. I’d slice my 3-iron into the trees. I’d hit my five iron, but it would fade left and only go about 100 yards. I’d totally duff my 3-wood.
So what did I do?
I ended up just playing with my 9-iron and putter. Honestly. It didn’t matter if it was a par 3 140 yard hole or if it was a monster 540 par 5 – I’d pull out my 9-iron and shoot.
Therein lies the problem…
I did pretty well for me – but I definitely wasn’t one of the top golfers playing. Sure I did better than I usually do, but I know that using my 9-iron on a long par 5 is not the optimum solution. Yes it improved my game – but I wasn’t going to be able to match the top golfers I was playing with if I only used two clubs.
I often see companies that use incentives like I use my 9-iron. It becomes the only club in their bag.
Therein lies the problem.
We find that we have some success with an incentive program/reward program/new initiative and we think, “hey, we’re doing pretty good here.” Then we use the same thing again and again – regardless of the issue we are trying to address. The problem is that using that approach, we will never be at the top of our game. We will never be able to fully motivate and engage our employees. We will get to the equivalent of a 540 yard hole, which requires a creative new approach – and we pull out the “9-iron incentive” instead because, hey, “I can hit it 170 yards.” But that probably won’t ever get you a par. And it certainly won’t get you an eagle.
There are a number of clubs that we have to use to help drive motivation. We need to engage people with challenging jobs, build great interpersonal connections, create a culture that people are proud of, make sure that people have opportunities to grow and excel. But these are all harder to master, take longer to build, and have a higher probability of a major slice or hook – so we too often just fall back on the old faithful 9-iron incentive plan.
The Driving Range
So I need to go out to the driving range and start working on my other clubs – maybe starting with the 8-iron and moving down the line**. That is the only way that I will ever improve my game and become a “good” golfer.
The only way a company will ever become really good at motivating its employees is to start developing their skills with other methods of engagement besides incentives.
We can look at the 4-Drive Model of Employee Motivation and know that we have to engage people in bonding, learning and defending as well as in acquiring.
Get out on the proverbial driving range and see what works for you. Add a little more job rotation. Change the goal setting system. Maybe some more team building. How about a more open and communicative culture. It takes practice. It takes time. There will be a few shots that go in the water…but in the end, its what is required to become a scratch golfer or a great company!
(**Of course, I think I’ll take a few more weeks off from golf to fully recover…I mean 99 holes in 5 days is a lot!)
Let us know what your favorite club is – leave a comment!
We’d like to know what you think was the best incentive program that you’ve ever been a part of – either as a participant, a designer, consultant or manager.
- What was “it” that made the program stand out for you and make it special?
- How was it different?
- What did it do?
The 4-Drive Model of Employee Motivation as we’ve discussed (here and here) provides a very robust theory that when applied, can help companies increase the motivation of their employees. One of the key tenants of the Four Drive Theory is that each individual is motivated by all four drives (A: Acquire & Achieve, B: Bond & Belong, C: Challenge & Comprehend, and D: Define & Defend) but that each individual’s motivational profile will be different (i.e., one employee might be driven more by drives A & C compared to another employee who is more motivated by B & D or B & C).
The important thing to understand here is that everyone’s motivation is different!
Which can be a problem since most companies don’t customize their incentive plans down to the individual. Often an organization’s customization comes down to offering a few additional spurts throughout the year. So unless the company hires only people with a specific motivational profile, some employees will not be as motivated as they could be.