recruitment & retention assessment & evaluation

H

compensation & benefits performance management learning & development succession planning

[compensation & benefits] by James Feldman and Diane L. Landsman

THE BENEFITSOF INCENTIVES

Incentives have been defmed as "what companies putin place - above and beyond straight salary - to getpeople to do their jobs." The defmition is only partlytongue-in-cheek. The most successful and progres-sive businesses in the world increasingly are embrac-ing performance-based compensation and incentiveprograms. Why? Because most of the time, they meeta need and offer tangible benefits.

The need might be strategic: to attract and retainhigh -caliber talent, manage risk from rising compet-itive pressures or lift the levels of productivity andperformance across the enterprise. Other objectivesfor implementing employee incentive programs aremore tactical, such as shoring up sagging customerservice, boosting sales or addressing a shift in thebalance sheet. Often, they are short-term effortsfocused on driving employee behavior towardachievement of a specific productivity or profit ini-tiative, sales target or service goal.

Incentive programs are equally as effective in eitheran "up" or "down" business climate. When demandsoftens, the best competitors recognize the advantageof increasing their share of the market to weather thestorm. During an "up" swing, incentives can helpaccelerate new product introductions, expand distri-bution and increase market penetration.

CASH OR NONCASH?The incentives organizations offer employees mighttake the form of bonuses, or they can be noncashrewards. More than three-fourths of the Fortune 500companies prefer to use noncash incentives.Expenditures for these programs exceed billions of dol-lars annually, as companies supplement their employ-ee compensation plans (straight, salaried, or commis-sions and bonuses) with noncash incentive programs.

The Incentive Federation's "2005 Survey of Motivationand Incentive Applications" examined incentive users'objectives, practices, costs and results across all levelsof American business. Results of the study revealedseveral trends in noncash incentive use:

· 83 percent use merchandise and/or incentivetravel in their sales incentive programs.

. 72 percent use merchandise and/or incentivetravel in their nonsales recognition/motivationprograms.· Four out of five survey respondents (80 percent)think travel awards and merchandise awards areremembered longer by program participants thancash awards.

Ell talent management magazine www.TalentMgt.com

CHARACTERISTICS OFA GOOD INCENTIVE PROGRAMWhatever form of incentive a company selects, for theprogram to work well and achieve the desired results,the first order of business must be understanding thetarget employee group, what motivates that groupand what it considers valuable. Otherwise, the pro-gram won't be personal or productive.

Identifying exactly what employees are likely to dowithout being paid to do it, or what their true inter-ests are, is a complicated process. Many incentivemanagers make the mistake of assuming that whatmotivates them will motivate everyone.

For instance, employees with large disposableincomes fmd free travel and merchandise veryexciting. Those with less overall income, however,might fmd "free" still costs too much. For them, thetax implication alone can be a deterrent to winninga "free" trip, let alone the costs associated withenjoying the experience. Therefore, it is importantto keep these differences in mind when planningany incentive strategy.

Public recognition, on the other hand, is generally auniversal motivator. Most employees rate "regularrecognition of my contribution" as one of the topdrivers of employee engagement. To get employeesexcited about the program, first implement a systemfor recognizing the top achievers and then makerecognition a part of every program within the com-pany. The size or value of the reward is a secondaryfactor, as long as the company is diligent in givingrecognition where it is due.

To ensure the program is structured for success, itpays to begin by segmenting the target audience,grouping employees according to their levels andinterests. Defming the participants makes it easierto develop an awards program that is appropriate,with rewards that are suitable for each group. Ifthere is uncertainty about what motivates employ-ees, the easiest recourse is to ask them.

The actual segments used for any incentive programare based on the character of each corporation. Butin general, it is helpful to organize employees intoseveral categories, determine what appeals most toeach group and then tailor the incentive rewardsaccordingly. A fairly typical employee segmentationmight look like this:

LEVEL A: The first group consists of hourly workers,clerical positions and entry-level employees. Theygenerally are not motivated by travel or luxury mer-chandise - their main concern is trying to pay the

Thefirst order of business must be understandingthe target employee group, what motivates that

group and what it considers valuable. Otherwise,the program won't bepersonal orproductive.

monthly bills. The incentive program for this groupshould be geared to their needs and interests.

For the Level A employee who is trying to makeends meet, extra cash is a good motivator. Gift cer-tificates or vouchers to restaurants, movie theatersand other leisure activities, however, often motivatebetter than cash, and they are free from guilt. Theyallow the winners to indulge themselves and theirfamilies with entertainment they might have deniedthemselves because of budget constraints.

If travel is selected as a reward, a fully hosted trav-el group would be preferable for the Level Aemployees. A travel package that includes airline,hotel, some meals and some activities, along withthe opportunity to enjoy these perks with peers, canturn this reward into a desirable incentive.

LEVEL B: The second employee group consists ofmiddle managers, salespeople or sales managers.These employees have some equity in their homes,their cars and their careers, along with significantdisposable income. Travel rewards might havegreater appeal than merchandise for members ofthis group because they might be more flexible withtheir time and income.

This group contains a wide range of individuals.Therefore, incentive programs must address their

incomes, education, interests and other evaluationcriteria. Level B employees put a premium on flexi-bility and convenience, and they are attracted tovacation travel. Management-level employees aretypically upwardly mobile, competitive individuals.They like to be in the forefront, and they like recog-nition. Individual travel is their preferred award -group trips are less appealing to these employees. ,

,

I

LEVEL C: This group of employees is made up ofexecutive level managers, owners and distributors.These individuals have free time and significant dis-posable income. Many travel first-class, indulgethemselves in fine foods and expect the best forthemselves. They have participated in many incen-tive programs and understand the "rules."

Their major interest is the multiplicity of choices andthe prestige associated with the awards offered.Noncash incentives must be very upscale with brandrecognition. Travel must be first-class, paying specialattention to the personalized treatment of their "sta-tus." 1b entice these employees, the reward should besomething they would pay for on their own.

The word "free" is very compelling to Level Cemployees. These potential winners earn in excessof mid-six to seven figures a year, so money is not amotivator. They can afford to make their own vaca-

talent management magazine www.Th1entMgt.comll

- --

~1

recruitment & retention, assessment & evaluation

,,",','

compensation & benefits performance management learning & development succession planning

From Incentivecentral.org

INCENTIVES PROGRAM RESOURCES

Once you decide to pursue anemployee incentive program, wheredo you turn to make it happen?There are hundreds of suppliers inthe marketplace who offer a widerange of services and merchandisegeared toward employee motivation.Incentivecentral.org is a nonprofit,online information center supportedby the industry. The site is designedto provide an objective, comprehen-sive, noncommercial gateway toinformation about motivation pro-grams and resources. Here is a sam-pling of the information you can findon the Web site about suppliers anda list of several vendors who areconsidered industry leaders.

FULL-SERVICE PERFORMANCEIMPROVEMENT COMPANIES

These companies put together all theincentive program elements into anintegrated, turnkey service thatincludes in-house communications,tracking, administration, reportsand awards, The largest even pro-vide training services.

INC ENTIVE-FULFILLMENTCOMPANIESThese companies offer print andonline catalogs, plus drop-shippingawards to recipients. They do notoffer comprehensive program sup-port and generally can do everythinginvolved with tbe merchandise pro-gram itself.

INCENTIVE REPRESENTATIVESThese regional companies functionas exclusive fact.ory authorizedrepresentat.ives, selling brand-namemerchandise at. factory prices for

qualified incentive programs. Somehave evolved into miniature promo-tion marketing agencies that offermarketing and tracking support. forincentive programs.

INTERNET INCENTIVESWeb-based incentive programs (andmany traditional companies) allowcompanies to create their own pro-grams, including tracking, adminis-tration and qualification, as well asselect from awards offered by theonline incentive company.

DEBIT AND LOYALTYCARDS

The credit card industry producesa plethora of card-based awardprograms including pre-chargedcards that. expire once they areused and new card accounts with

an opening balance t.hat can berecharged.

MEETINGS AND INCENTIVETRAVEL COMPANIES

These companies offer corporatet.ravel programs specificallydesigned to mot.ivate and inspire.Most. are based on st.rategic dest.ina-t.ion select.ion, on-site events andact.ivities and multidimensionalcommunication. The best have t.heirroots in t.he incentive business, not

t.he t.ravel indust.ry.

PROMOTIONAL PRODUCTSDISTRIBUTORS

These most.ly regional ad specialtycompanies have gotten into theincentive business, usually t.o serveclients with smaller budgets than thebig agencies can handle profitably.

CONSUMER PRODUCTSMANUFACTURERS ANDRETAILERS

Almost every brand-name manufac-turer and retailer has a special mar-kets division that sells branded prod-ucts and/or gift certificates in quant.i-ty at.bulk pricing for corporate use inincentive, recognit.ion and businessgift programs.

Representat.ive vendors in t.he indus-try include:

.American Express Incent.iveServices

.Anderson Performance

Improvement

.Awards.com

.Carlson Marketing

.CorporateRewards.com

.Discover Network

. Disney's Incentive Rewards

. Dittman Incentive Marketing Corp..EGR International Inc.

.Hinda Incentives

.The Incentive Group

.James Feldman Associates Inc.

.Maritz Inc.

. Madison Performance Group

.Marketing Innovators

.Meridian Enterprises Corp.

.MotivAct.ion

.D.C. Tanner

.USMotivation

.Visa Rewards

.Selling Communications Inc.

incentives have "bragging rights," and nothing ismore important to the Level C employee than to beable to say "I was there."

tion plans. Recognition sets them apart from others,however. They love to travel for free to expensiveplaces and be treated like royalty. They respond to"ego" trips to places and events not normally avail-able, at any cost, to the general public.

A round of golf in Augusta, Ga., (home of theMasters Golf Tournament), dinner at Palace ofVersailles or VIP seating at the Academy Awardswill grab the attention of these employees. These

NoS

lEI talent management magazine www.TalentMgt.com

DEVELOPING THE RIGHT PROGRAMThe excitement and challenge of all business activitycenter on motivation. With a properly run incentiveprogram, you can motivate your employees to outper-form expectations. But that's also where the challenge

STEPS TO CREATE AN EFFECTIVEINCENTIVE PROGRAM

1. Review Incentive History·What did your company do?·What do you know about the success or failureof the program?·If you ran the same program today, would the resultsbe different?·If the winners were given the same reward for thesame effort, what results would you expect?·Did you receive suggestions or complaints thatwould make a similar program run more smoothly?

2. Define the Role of the Motivation Program.Who are the participants?·What end result do you anticipate?

3. Set Objective Measures for the Program·Is the anticipated outcome measurable?·Is it realistic?·Is it attainable?

4. Create an Incentive Strategy·What is the business objective of the promotion?.What are the results you want to achieve?

5. Review the Objectives and Strategieswith Management·Make sure everyone on staff (including support per-

sonnel stafi) is involved..Make sure all department heads understand the pro-gram before it is presented.

6. Determine Tactics and Creative Concepts.What kind of theme or graphic representationshould be used?·How and when should the program be announcedand promoted?

is: to run a measurable, effectivemotivationprogramspecificallydesignedto achievestated business goals.

Toooften, an incentive program is created in a vac-uum. Many sales incentive programs provide a goodexample. The program might be developed out of adesperate need to boost sales dramatically or tomeet year-end sales goals in a "now-or-never" timeframe. Managers, thus, rush to put together anincentive program with too little forethought. Whenthe results don't meet expectations, few see the con-struction of the incentive program as the problem.Sometimes, the incentive plan might be blamed asthe culprit.

Creating a program that motivates performance ina cost-effective manner doesn't just happen - it isa multistep process that involves planning and

·Who will take the lead in presenting the programto employees?

7. Set a Budget.What is the maximum potential cost of the awards?.What should be budgeted for a communicationS/pro-motion program to support the awards?·What will the administrative costs be for trackingprogress for everyone in the incentive program?

·What about training (which is often neglected with-in incentive programs)?.How can the education component be incorporatedinto the incentive reward?

8. Prepare the Specifics of the Incentive Program.When will the program begin and end?·Who will be the participants?·What type of program will it be? The rules shouldbe clear, simple and comprehensive, and youshould anticipate surprises.·Select a memorable, appropriate, simple,exciting theme.·Choose the awards.

9. Implement and 'Irack Program Results·Assign responsibility for tracking.·Provide reports to participants at each level, man-agers and executives..Fine-tune throughout the program.·Monitor fulfillment of awards.

.Interview winners after they receive their prizes.

10. Debrief After Completion.When the program is history, ask for feedback fromall levels.

research. Following these steps (see sidebar) increas-es the likelihood the employee-incentive programmeets not only its identified organizational need butalso the needs of the participants for recognition,appreciation and a sense of working toward a com-mon goal. It also provides a template for futureengagement efforts that can be repeated in otherdepartments, to meet alternate goals, to address newchallenges and motivate different segments of theworkforce. TM

James Feldman is the fOWlder of James FeldmanAssociates Inc., a diversified group of companiesfocused on incentives, motivation and performanceimprovement. Diane L. Landsman is the editorialdirector of MediaTec Publishing. They can be reachedat editor@'I'alentMgt.com.

talent management magazine www.Th1entMgt.com Ell