This article highlights the key learnings from Kurt’s presentation at the “2020 World at Work Spotlight on Sales Conference”. The original slide deck is available below.
In 1937, paleontologist Gustav von Koeningswald was working on the island of Java in Southeast Asia, searching for new evidence of our early human ancestors. To achieve this goal, he needed to find fossils, and the apex of fossils was the skull. With an intact skull, paleontologists are better able to distinguish between ape and human.
But skulls were rarely are found
Instead, paleontologists needed to piece together a multitude of small skull fragments in a complex 3D puzzle. It was difficult work – difficult to find all the pieces and difficult to fit them together in the right way to reform the original skull.
To help alieve the burden of searching and finding the skull pieces, von Koeningswald enlisted the help of people from the local village. He did this by giving them an incentive. He paid them 10 cents per skull fragment that they delivered to him.
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
There was a recent blog from HRZone UK that claimed, “Blog: Most employers spend more on office cleaning than staff motivation.” I cannot vouch for the accuracy of this statement or info in the article.
That being said, accuracy is not the point. The point is, you get what you pay for – right? So what is it that your organization is paying for?
How is your company spending its money? Is it on it’s people or on systems? Is it on sales or is it on customer support? R&D or discounts to suppliers? The money often points to where the focus is for your company?
Two things that I often do when working with companies trying to improve their employee motivation is 1) interview key leaders to understand what the key drivers of the businessare and 2) conduct a total rewards audit. I use step one of this process to get at the underlying drivers of the business. This often isn’t the first thing that comes out of leaders mouths. In fact, it usually requires me to probe with them to really get at the root cause. This understanding of the key drivers is vital to being able to motivate the appropriate behaviors and performance. What we find in step two of this process is that the company’s Total Rewards are NOT in alignment with the key drivers. In other words, companies are often spending their money on things that are not key to driving their success (similar to the clean office analogy in the HR Zone article).
This is not a good way to spend money.
Hopefully your company isn’t doing this. But a simple way of finding out is to look at where you are spending money and then seeing if that aligns with the key drivers of the business. If it aligns, you are doing well, if not, you have a problem.
This means that while theory is nice, what is really important is what happens in real life.
Most of the time when clients hire us, they hire us because we can impact the bottom line through changing the behavior of their employees. Most of them don’t care about the theory behind that change no matter how wonderful it is (e.g., The Four Drive Theory of Employee Motivation) – what they want is results.
Which gets me to the point of this post – if we are really about changing behavior, why do we care about motivation?
Think about it – motivation in and of itself does not change anything. You can be motivated and pumped up and rearing to go and still not accomplish anything. I’ve been motivated for years to loose weight – yet up until a few months ago, I haven’t done anything about it. In their book, “Change Anything” Patterson, Grenny, Maxfield, McMillan and Switzler (the guys from Vital Smart who wrote Crucial Conversations and Influencer) talk about how motivation is just one aspect that is required to achieve personal change. Indeed, they talk about the fact that if all we have is motivation, no matter how much it is, we are most likely headed for failure.
To drive change we also need to have the skills, tools and knowledge necessary to achieve that change. We need to have a social network that supports us in our change efforts and isn’t trying (actively or passively) to derail that change. We also need an environment that helps us and doesn’t hinder us. In other words, motivation by itself is not enough.
Motivation is vital to this whole equation. It is the impetus to get us off our butts and start doing something. It is the pressure that is applied to us throughout the change process – the pressure to continue and not quit when it gets tough. It is the internal drive and fortitude to keep going and keep pushing oneself. Without motivation, no change would happen.
And that my friends, is the reason that motivation is important.
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.
And you know what…I played better than I usually do. We used many of my shots in the scramble competition. I won my head to head match. Overall, I did pretty well using just my 9-iron.
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.
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!
[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 attainableby 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!
“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.
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.
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