Money for Something

Date: August 2008
Publication: Australian Business Solutions Magazine 

Once the domain of senior management or sales teams, performance incentives have become a key part of the human resource and remuneration strategies of many organizations – both large and small. In part, this has been driven by the ‘battle for talent’ but there have also been changes in the attitudes of employees. Many employees are becoming unabashed about asking, “What is in it for me?”

But a staff incentive program does not need to be a one-way street of additional employee benefits or a massive financial burden. Rather, an incentive program can create an opportunity to better align staff behaviour and performance with organizational objectives. 

Incentives are a Business Investment
The first steps in creating a cost-effective staff incentive program are to recognize that the program should deliver a return-on-investment and to define how that return will be assessed. Incentives are not gifts – they are rewards for achieving outcomes that provide a commercial benefit to the business. An incentive program should serve a business goal. In this sense, a good incentive program should more than pay for itself. In research conducted on behalf of Accumulate, it was found that, among Australia’s leading organizations, the most common business outcomes of which incentive programs are used to deliver include:

• Improvements in performance on factors such as sales, customer service and general business indicators (for example,           overarching financial results, cost reductions and so forth)
• Employee attraction, engagement and retention

Getting a Return-on-Investment
Incentive programs deliver their returns by motivating staff to achieve defined outcomes and to behave in certain ways, which are tied to the business goal being pursued. It is in rewarding both outcomes and behaviours that programs become most effective. Rewarding outcomes keeps employees focused on what needs to be achieved, particularly in the short-term. Rewarding behaviours promotes actions, like improved customer focus, innovative ideas or better communication, which underpin organizational objectives in the longer-term. It can also align employees with organizational values or culture.

Defining behaviours to incentivize is, of course, more difficult than defining outcomes. But it is a valuable exercise for any organization to take the time to elaborate on what it really means by concepts like customer-focus, teamwork or innovation. That is, there is a benefit in simply defining the actual behaviours being sought and then clearly and repeatedly communicating those behaviours to employees. An incentive program can provide an opportunity to make concepts more concrete by saying, “We are offering you an incentive to behave in this particular way”.

Where To Begin
Before you begin your program it is important to ensure that staff understand exactly what behaviours will be rewarded and why. However, you must also ensure that managers:

• Understand the program objectives
• Have clear definitions of the behaviours and outcomes to be rewarded
• Understand the criteria for assessing whether a behaviour or outcome is worthy of a reward
• Understand the importance of transparency and fairness in awarding incentives
• Are able to firmly link, in the employee’s mind, the reward to an observed behaviour or outcome

The point here is that it is necessary to define and communicate exactly what employees are being asked to achieve and how to behave in order to have the desired business impact.

Human resources
When these factors have been established, it is then critical to establish targets and monitor progress. For example, if an objective is to raise customer service standards, mechanisms can be implemented for gathering customer ratings of their service experience and quantitative targets set accordingly.

Incentive programs do not need to be ‘feel good’ exercises. ‘Hard’ measures and targets that are tied to business imperatives can and should be applied to these programs. Where a program fails to deliver the desired outcomes, it should be redirected or even removed.

Expenditure is Tied to the Return
Once the program outcomes have been defined, the next issue is to decide how much money is to be spent on it. If incentives are an investment, then the amount spent on the program should be commensurate with the commercial return expected.

For example, an organization would spend more on a program that seeks to deliver, say, a $100,000 increase on sales compared with a program that seeks to deliver $50,000 in increased sales.

Incentive programs do not need to be run on an open cheque book. They can be structured to follow a budget. There are solutions available that enable organizations to control expenditure by determining the value of rewards and how and when rewards are redeemed. Surprisingly, research shows that around a quarter of Australia’s largest organizations do not monitor their full expenditure on staff incentives. Taking a more commercial approach to staff incentives could provide a competitive advantage to a business.

For example, when running a sales team, you might try this:

• Pre-determine monthly sales KPI’s & assign them to each sales person drawing the information from their past performance & future sales potential
• Identify & communicate clearly the points that will be awarded for sales made, and offer a bonus for those who surpass the set KPI’s.
• Keep track of sales achievements & cross-check their validity, clearly communicating progress regarding sales targets & actual sales made
• At the end of the defined period, award points to staff for the sales made, as well as awarding those who have beaten their sales targets & KPI’s.

Motivating People
An objective, measures and a budget for the staff incentive program are now in place. But how will the program actually influence performance?

It may sound obvious, but employees need to be offered incentives that motivate them. Rewards need to be inspirational and aspirational. This does not necessarily mean that an organization needs to spend big though. What it does mean is that an organization needs to think innovatively about rewards, beyond just cash incentives, which can too easily become seen as part of a salary and, surprisingly, not everyone is motivated by just money!

But it is not just about giving out expensive gifts every month either. Sometimes a sincere and public thank you or a staff barbecue provides greater motivation than any gift. As a wizened manager once said, “Never underestimate the power of a formal letter of thank you, signed by someone important, that can be stuck on the fridge and shown-off to the missus”.

The key here is to tailor the incentive to the individual and what motivates them. As work/life balance becomes an issue, rewards that involve partners, like special experiences or merchandise for the home, can be more influential. Over the course of 2007, it was found that, when choosing rewards for themselves, employees favoured experiences and travel, electrical goods and homewares.

Motivation, however, does not begin and end with the reward itself. Employee communication is also an important element. People need to understand not just how the incentive program works and benefits them but also the larger business context.

Organizations need to communicate the ‘why’ – why they are offering incentives, why it is important to the business and, ultimately, to employees.

Organizations also need to think of the program, in a sense, like a product. That is, it needs to be sold to employees and they must never forget about it. It needs to be remembered that, if behaviour and performance are to be influenced through an incentive program, employees must buy-in to that program and remain loyal to it over time. This means building open lines of two-way communication around the program.

To get staff engaged in the program, and ensure that they are getting the sort of incentives and rewards that will motivate them, try this:

• Set up a Monthly Recognition Committee who agree upon people to be recognised, a popular method is by way of points
• Award Loyalty points for length of service (1 year, 3, year, 5 year etc)
• Award points to Top Achievers of each month in key categories (e.g. reflecting company values like Innovation, Teamwork, Customer Service)
• An online reward program could be set up, were people are allocated their points monthly.

Staff can then go to their rewards account and choose any reward from a online catalogue for which they have enough points to redeem.

Is a Program Cost-Effective?
A dollar spent on an incentive program that does not influence employee performance is a dollar wasted. In this light, even the cheapest program can be costly, while an expensive program can be much better value for money. The key to creating a cost-effective program is to define exactly the desired outcomes, with key measures and targets, and to establish a firm budget that is commensurate to the desired business benefit.

Whether a program is cost-effective is then determined by the achievement of its objectives and budget performance, which in turn rests upon the ability to motivate people to engage with the program.

For more information about the Accumulate employee recognition rewards programs and software, sales & channel incentive programs or customer loyalty programs call 1300 733 725 or email info@accumulate.com.au