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How do you create a win with incentives?

Written by: Andrew Clark
(View Author Bio)

The answer? With a carefully mapped out process, behavioural science, and a plan.

With Incentives, it starts with: “why would you do one in the first place?” We all like to win, we all like to feel appreciated for the effort we put forward, and we all like to be rewarded. It’s called the “dopamine effect” — the rush we get when something good happens to us. You might ask, “Can’t I just pay people more to do what they are supposed to do?” If only it was that easy. The reality is it’s complicated, but there are ways to make it easy. 

With incentives, we are really trying to create excitement and focus on specific objectives for a limited period of time, to inspire people to change behaviour or perform at a higher level. And ultimately drive your strategies and deliver targeted results. There are a few rules of thumb:

Incentives should have a defined objective and purpose that everyone can understand. They should align with business strategies and goals. They should be designed to achieve a specific result, drive focus, establish priorities, and motivate behaviour.

In general, they should “move the middle” — motivating the performance of the broader audience, not just top performers. There is a place for top performer rewards and recognition for sure. By the way, your team knows that the same people win all the time anyway so you need to address this perception.

The challenge is also that the lift from top performers can bring to your overall results simply isn’t large enough against the overall potential of the team. And, forget the 80/20 rule (sorry Vilfredo Pareto) it’s not 80/20. Our research tells us that 46 percent of performance comes from 80 percent of your team.

That being said, don’t assume that the team will be automatically engaged. Make sure you ask for a commitment. People who choose a goal or opt-in are much more likely to succeed. Speaking of succeeding, where ever possible, goals should vary by individual relative to their own performance.

It’s called “Idiosyncratic fit”. People need to have a reasonable chance of winning to embrace a goal. If you let people choose:

  1. Will the goal be high enough?
  2. Will the Return on Investment (ROI) be there?

Yes, on two fronts.

Our statistics show us that time and time again, the largest percentage of participants choose the highest goals. We need to plan out goals that are good for the participant and the company; it’s called “choice architecture” – helping people make the best choices by offering limited options.

After executing an incentive program, there is a great opportunity to establish a “new” normal for performance. It’s called the “hedonic treadmill”. People always want to move to the next level. Those who achieved will be keen to do it again and those who didn’t will try harder and want to be successful as well.

Create competition and communication around results. We all want to be seen as successful in what we do and often judge our success relative to those around us, known as “relativity bias” — commonly called “keeping up with the Joneses”.

Change it up; don’t run the same programs all the time. Add an educational component; we firmly believe that learning and engagement drive performance. International research based on our New Rules Index™, shows that learning is fundamental to employee engagement. Of course, well-designed incentives are measurable, have a defined ROI, and should be self-funded through the attainment of program goals.

There are challenges in executing great incentives. Our recent study across 575 sales compensation experts identified that even the best-designed incentives encounter execution hurdles. Execution is critical. It sounds obvious, but one of the biggest challenges is having timely and accurate data to build and execute properly.

Some interesting statistics were uncovered in our research. 45 percent of participants reported having competing incentives within the same time period. 25 percent indicated a lack of support from frontline supervisors and 37 percent from other functions or departments. Simply put, managers matter! Leadership support and engagement in promoting performance is critical. 

Focus on clear on-going communications with your target audience and gaining buy-in from your managers and supervisors. Consider having goals and rewards of their own or for their team’s performance.

It’s a process and there are several key steps to consider:

  1. What’s the business issue or opportunity? It isn’t always sales. It could also be behavioural in the end. We’re really influencing behaviour to align with your strategic objectives.
  2. Who is the target audience? How do we define them? And how can they positively impact the results?
  3. Set goals and objectives that clearly relate to who needs to do what and by when. Participants must have the ability to influence results and know what is expected of them.
  4. Establish a realistic budget based on what is required to impact performance. It should be commensurate with the effort required. We don’t want over or underpay. A successful incentive is a balance between the effort and achievement of results and does not just “payout”.
  5. Developing an effective incentive is more “art” than “science” since each program is designed to fit a specific client situation and goals. The basic program structure should include:
    • Program rules — short and easy for participants to understand.
    • Communication plan — inform participants and keep them engaged.
    • Training plan — educate participants and develop their skills.
    • Measurement and reporting — how and what activities will be tracked, measured, and reported and update participants on progress and calculate final results.
    • Tangible awards — motivate participants and award performance.

What award is the right reward? (Hint: it’s not more cash)

Cash is great. We all need it but it’s not inspirational or memorable. It immediately creates a calculative mindset “Is this a good deal?”

THE MERCHANDISE AND EXPERIENCES EFFICACY CONTINUUM

Rewards Efficacy Continuum Experiences.png

Our experience has overwhelmingly shown that tangible awards drive higher performance. Whereas travel or tickets to the theatre, concert or luxury merchandise are more emotional in nature and the question becomes, “Do I want it?” The farther away from the dollar sign, the more effective the rewards become at changing behaviour. We refer to it as “mental accounting”. Rewards separate wants from needs. Participants can redeem for something they want.

There are a few key reasons tangible rewards are so powerful:

“Sociability”, it really isn’t acceptable to tell your friends how much your cash bonus was, you can, however, watch the big game together on your new 85” big screen and tell everyone how you got it as a result of your performance at work. It’s the difference between sharing and showing off.

And the good news for you, the employer, is that we remember how we got that reward all the time, it’s called “Re-consumption”. Simply put, it’s being reminded of how you earned something. If your incentive is designed properly, it should align with your strategic objectives.

The reality is that people won’t spend their own money on certain things, no matter how much they want it. “Justifiability” is a key reason that rewards are compelling. It’s the permission to get what I [the participant] want. Rewards and recognition also create “subjective well-being” which helps people feel better about the work they are doing.

There is an increasing indication that experiences and travel are the most desirable rewards that can influence behaviour change. Running programs in over 160 countries, we’re seeing the trend is definitely toward more experiences and fewer “things”. The power of personal choice and the ability to curate rewards that appeal to specific individuals is essential. A few points regarding the benefits of tangible awards, effective awards are positive, immediate, and certain:

  • Positive — awards featured in the program should be perceived by participants as desirable and should reflect a positive reinforcement for delivering the desired performance.
  • Immediate — awards should follow the desired performance as closely as possible.
  • Certain — the participant should be certain they will receive the promised award if they successfully achieve the desired result.

The program shouldn’t be a surprise! A strong sustained communications campaign is critical to the success of any incentive program. People remember things that are graphic or dramatic, known as “vividness”.

Key considerations:

Communication plan

The communication plan should target the entire impacted audience — sales representatives, front-line managers, leadership, and other key stakeholders. Make some noise and grab attention when you announce the program. Outline all incentive components, raise awareness, and inspire employees to achieve the program goals.

I said it before, managers matter, involve leaders. Drive engagement and support with messages from front-line managers and senior leadership. Participants especially appreciate seeing executive involvement. It sends a strong message. Don’t rely solely on reward platform technology or digital communications; we are all bombarded with digital communications. You need to cut through the clutter in the beginning, throughout, and at the end. Hold kick-off and celebration activities. These provide a fun way to create excitement and momentum.

Have regular follow-up communications with performance updates. We tend to judge our success in comparison to others. It’s called “relativity bias”.  Keep the incentive front and centre, encourage active participation, remind participants of the goals, provide progress details, and promote awards. You can’t over-communicate. Finally, send winner/award notifications. Inform participants of the program results and thank them for their contributions.

Measurement and reporting

Perhaps the most important step, evaluate the incentive to quantify what was invested and what was achieved. We’re all accountable to someone and they will want to know the investment was worth it. Measurable results should be built into the design that helps determine the program’s value.

There may also be intangible benefits that cannot be measured as such as team building. It’s a relevant side benefit but accountability for a financial impact will allow for long term impacts. We don’t want to wait until a program is over to find out how successful it was. It’s important to evaluate a program — not only upon completion — but throughout the program to ensure it’s performing as designed or to give you the opportunity to make corrections, if necessary.

A post-incentive evaluation should be conducted as quickly as possible after the program ends — and shared widely.

This allows you to:

  • Identify differences between actual and desired performance.
  • If a program did not achieve desired results, understand why to avoid similar mistakes in the future.
  • Identify areas for improvement.
  • Identify quantify cost versus result (ROI).
  • Identify opportunities for additional programs.
  • Share key findings and leverage best practices.

We know that 77 percent of human behaviour is driven by emotion. The best incentives leverage the science of applied behavioural economics to drive decisions and behaviour. This can be broken down into three key areas:

  1. Engagement strategy to communicate, educate, motivate, and update.
  2. Incentive design to elicit desired behaviours.
  3. Rewards to stimulate visualization and evoke emotions.

Behavioural economics can also help us determine which program structure is right for which circumstance. Generally, there are two types:

  1. Closed-ended structures that have a fixed budget and should be designed so 20 – 40 percent of your audience can “win”.
    • The advantage is that you won’t go over your budget allotment.
    • The disadvantage is you may pay out awards and not get the results you hoped for unless you put in some minimum qualifiers. Examples include, “Stack Ranking”, “Break the Bank”, probabilistic or deterministic sweepstakes.
  2. Open-ended structures historically produce stronger results than other structures because everyone can earn awards based solely on how they perform. Participants feel in control of their own destiny and the rewards go up in proportion to how strongly they succeed. Examples include, “Do This, Get That”, plateau level of awards like a “Step It Up” program, and GoalQuest®, our patented industry-leading rules structure based on goal selection and all or nothing performance. It works and we can prove it. In fact, we have executed GoalQuest® programs with over 1,150 clients and 1.1 million participants.

Why should you use points-based incentives?

There are a few things to consider:

  • Flexibility — promotions can be changed up easily and without “loss aversion”, as I said in the beginning, we all want to win. Actually, we hate losing way more than we like winning.
  • Easy to communicate and understand “Do ‘A’, Get ‘X Points’”.
  • Universal understanding of award points programs.
  • Choice — recipients can determine the award that fits their preferences and lifestyle.
  • Program design — the ability to vary payouts and provide relative value.
  • Reinforcement, behaviours, and achievements at time points are awarded and as they are redeemed.
  • The power of accumulation — the ability to combine earnings from previous promotions and/or activity increases the value of existing and future promotions. Each promotion has intrinsic value that cannot be replicated in a stand-alone promotion. It builds equity for participants and stickiness for program sponsors and allows for the attainment of compelling higher value awards.

As mentioned earlier in our research of 575 sales compensation experts, when asked about the effectiveness of non-cash rewards, here is what survey respondents said they use award points programs to accomplish:

  • Short-term goal achievement.
  • Maintaining focus on critical products.
  • Focus on high-profit products or accessories.
  • Reinforce learning.
  • New product adoption.
  • Maximize seasonality.
  • Boost lagging products.

Who we are

At BI WORLDWIDE Canada (BIW), we inspire people and deliver measurable business results. We employ communication, training, measurement, and rewards as the foundation to inspire behaviour change and achieve results for our clients.

Each organization is different, so we first work out what your overall business goals are. Once known, we help define the employees’ performance objectives and design and deliver innovative incentives — grounded in the science of behavioural economics — to align with your business strategy.

To learn more about the ways our team can support you in driving performance, feel free to reach out to us at canada@biworldwide.com.

Andrew Clark

President, BI WORLDWIDE Canada

As President of BI WORLDWIDE Canada, Andrew's primary focus is to develop employee engagement strategies and recognition solutions that change the behaviours of employees and achieve measurable results. Andrew is an evangelist for the principles of behavioural economics which are at the core of what BI WORLDWIDE Canada does.

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