How Incentives Drive Employee Behavior

The elements of designing an effective rewards program

There’s a wealth of data that incentivizes using incentives. From pay and travel perks to simple recognition, the right incentives can drive productivity and ROI. It may seem like common sense for employers to offer some kind of reward beyond a regular pay check, yet incentive programs are not universally implemented – and many of the workplaces who don’t use them are losing out.

Nevertheless, to design effective incentives you’ll need to plan ahead to account for how human behavior is shaped by (and in turn shapes) the program – and make a commitment to adapting and maintaining it. Here are some of the essentials involved in designing effective rewards.

Understand that money isn’t everything

Before you start to implement an incentive program, consider the following: IRF research shows that 84% of companies are using non-cash rewards for their employees, and the approach is working extremely well.

The reason? When employees receive cash incentives, they’re more likely to put the extra money toward bills and other basic financial demands. These responsibilities mean forgoing luxuries, which non-cash incentives can provide. Thus, it’s not a bad idea to consider incentives that help your employees obtain things they might normally pass by, from both motivation and cost standpoints – the latter assuming you can obtain these perks at a discount.

Not all non-cash incentives cost money; simple recognition can effectively drive performance. Potential non-cash perks can include recognition programs, awards, thank you notes, comp days, training opportunities, trips, merchandise, gift cards, or even social recognition on company sites.

Of course, money is appreciated, and incentives that increase pay or benefits can be extremely effective at driving desired behavior if they are properly designed. Great examples of programs that work include profit sharing plans, enhanced benefits, bonus plans, retirement plan matches, and equity awards.

Be sure to assess which incentives work and which don’t, and periodically change the rewards being offered as needed. And whether you do or do not go with cash, make sure the incentives are very clearly and measurably tied to specific performance benchmarks.

Examining the benchmarks

How will you measure the success of your incentive program? Will it simply be revenue-driven, or will employee wellness or customer satisfaction be key factors? More sales, repeat customers, or positive customer feedback may be components. The combination that is right for your business depends on the exact outcome that you are aiming for. And whatever target or mix of targets defines the program, make sure it is clearly defined before building an incentive structure. Specific, measurable goals make it possible to assess the impact of the program and adjust it as it unfolds.

Incentives should apply to different levels of performance

It’s a good idea to set up a range of rewards from small (for relatively minor improvement) to large (for big achievements). Incremental incentives remove an all-or-nothing approach – the farther away a goal may seem, the less motivated staff may be to put in the work to achieve it.

Some employees are more skilled than others, and incentives that are completely weighted toward top performers could demotivate other workers. If your plan offers something for different levels of positive performance, the resulting productivity gains among all employees could be exponential.

In addition, when a successful but limited incentive plan sunsets, it will be missed when it’s gone – there is the potential for performance and morale to slip without ongoing motivation. Plan out how long a specific incentive will last and, if it has temporary goals, consider implementing a new one as the program draws to a close.

Be very cautious about exploited incentives

Targets can be manipulated, and this potential for exploitation should be considered carefully during the design of a program. The fraud that rocked Wells Fargo is a prime example of employees “gaming the system.” Incentives that rewarded employees for opening new accounts caused “at least 5,000 Wells Fargo employees” to open “more than a million fake bank and credit card accounts on behalf of unwitting customers.” Workers also pressured customers into agreements, resulting in poor customer service on top of the fraud.

Consider potential unintended consequences. Keep a close eye on your staff at every stage of the program. Validate the results of your incentive program and the methods used by participants to achieve payouts. Consider a smart mix of targets (such as revenue and customer service benchmarks) that may prevent an individual target from being exploited. And periodically change up incentives; this not only can maintain employee interest, it also mitigates the possibility of workers figuring out methods of abusing a program over time.

In addition to maintenance and proper design of a program, leadership must also communicate clearly about incentives. It’s the responsibility of management to set an ethical and professional tone for what you’re trying to achieve.

Preparation is the key element in a successful incentives program. With awareness of potential pitfalls, consideration of the needs of employees and customers in relation to your business goals, clearly measurable targets, and vigilance after implementing a program, well-designed incentives can revolutionize productivity, employee retention, and ROI.

At KARP HR Solutions, our creative approach has mastered the marriage between finances and human resources. If you need an ally in business, call us at 954-684-3284 or contact us here for a free consultation.