The Most Costly Incentive Mistakes

Bob Cowen

July/August 2010

I heard the president of a large corporation with a multi-hundred million dollar annual advertising budget lament that half of their advertising was ineffective and a complete waste of money.  The problem was that he didn't know which half.  If you think that's bad, consider the fact that only one-third of incentive programs improve KPIs (key performance indicators).  One-third aren't measured, and the final third produce negative results.  How long would a major league coach last winning only 33 percent of their games?

One of my favorite TV program segments is Jay Leno's "headlines," airing Monday nights for about ten minutes following his monologue.  This is similar to programs like "dumbest criminals," "worst drivers," and "stupidest stunts."  You get the idea; my point is that people do some very illogical things in all walks of life, and it's no different with incentive programs.

For your reading pleasure, below are a few of the things that I've observed, followed by my candid comments:

Refusing to Accept That Monetary Rewards Are Effective: Quite a few "experts" (often quoting a PhD) tell us that cash rewards or the equivalent (debit cards) is ineffective, lacks trophy value, is spent and forgotten, and has no long-term or residual effect.  It may take a bit of digging, but often the companies that say this are making money by offering overpriced merchandise.  This is easy to spot when they say that their rewards are taxed at less than 100 percent of face value.  The Internet has blown away the curtain of these experts. 

I've found that offering refillable debit cards is an effective reward option to employees.  Our last survey showed that 74 percent of redemptions were used to place funds onto debit cards, and a significant amount of the debit card spending occurred during November and December.  Many employees view debit cards as a means of saving for Christmas; they are taking the long-range perspective.  Those who belittle cash and debit cards are underestimating the intelligence of their employees.

Short-Term Thinking: I've heard managers say that their incentive program was effective, but when the program was over, their "numbers reverted to preprogram levels."  It's all I can do not to ask, "What did you expect?"  Having a long-term incentive program does not mean that it shouldn't change and evolve.  It's important to keep themes, goals, and rewards fresh and current with company objectives.  It's also critical that updates be clearly and quickly communicated and that the methodology of the program remain consistent.  Properly designed and implemented incentive programs can quickly and easily improve KPIs 20 to 40 percent and usually only take two hours worth of labor per employee per month.  However, if the program is terminated, employees can see it as a pay cut.  Spending two hours per employee per month for a 20 to 40 percent improvement is an excellent return on investment (ROI), so why would anyone terminate it?

Lotto Tickets: Most lottery tickets are losers; does anything else need to be said?

Only Rewarding the Top Performers:  If the reward earned for achieving a goal is justifiable every time it's achieved, the company should be able to pay the incentive to everyone achieving it; it's important to set an adequate budget to reward all who qualify.  It's quite discouraging for employees to work hard, clear the hurdle, and then see others rewarded but not themselves.  If the number of winners is limited and same people always win or it looks like employees don't have a chance, why should they try?

Rewarding the Final Grade Rather Than the Daily Homework:  Rewarding large activities occasionally does not change behaviors as well or as quickly as frequently rewarding smaller precedent activities.

Trying to Get a Lot for a Little:  Incentives don't need to be expensive to be effective.  It's easy to target too many KPIs, causing the reward for achieving each goal to be too small to change behavior.  With a properly administered program, KPIs can be quickly improved 20 to 40 percent, but some employers are reluctant to spend the two hours worth of labor cost per employee per month.  It's a great ROI, but if you spend too little or spread the rewards too thinly, you'll waste your time and money.

Rewarding Participants for the Things They Are Already Doing:  "If you reward someone for nothing, you make them good for nothing," says Aubrey Daniels, PhD.

Not Clearly Communicating Why Someone Is Being Rewarded:  If you place a ten-dollar gift card on my desk because I achieved a goal, I'm cool with that.  But if I don't know what I did to get it, how will I know to do it again?  I may think that I received this "just because" and will begin to feel entitled and upset if I don't receive it again.

Putting an Incentive on a Paycheck:  Doing so contributes to two problems.  The motivational value is lost; it becomes part of the salary versus an extra reward.  From the perspective of the recipient, the incentive is lumped in with all the things they may not like about their job.  Additionally, by putting rewards on a paycheck, the ability to closely tie the reward to the activity in a timely fashion is lost.

If you have made these or other mistakes, you are not alone.  The point is that these mistakes can cause damage and cost money.  Developing and implementing an effective employee incentive program should be diligently planned and requires more knowledge on the subject than most people realize. There are ample resources available to assist you in this endeavor; don't hesitate to reach out to them.

Bob Cowen is with Snowfly, provider of Internet-based employee incentives, recognition and loyalty programs.  For more information, contact Snowfly at 877-766-9359 or email Bob at rcowen@snowfly.com.