The Science Behind Using Incentives and Premiums to Motivate Employees

By Melissa Busch

Crafting a Successful Incentive Program

To help companies develop effective incentive programs, the researchers conducting the study “Incentives, Motivation and Workplace Performance: Research & Best Practices,” identified an eight-event PIBI (Performance Improvement By Incentives) Model.

The eight-event PIBI are:

1. Assessment. Management determines performance levels are inadequate because of a shortfall in motivation. Part of this assessment process is a “gap analysis” to assess differences between a company’s goals and employee performance. If the gap analysis shows that employees are capable but lack the effort necessary to improve performance, then an incentive program can be a useful way to change that behavior.

2. Program Selection. In considering the alternatives, it is best to adopt a quota-based incentive program, or at least a piece-rate (or reward for performance) model that gives each person the opportunity to earn awards by surpassing attainable performance benchmarks.

3. Work Value. Incentives increase performance by boosting the value people assign to work goals, causing them to make stronger commitments to goals and achieve them.

4. Establish Training and Communication. Once an incentive has adequate utility value, people should focus on their abilities to perform the relevant tasks. This process includes training support and regular communication.

5. Support. People must believe the organization will support their performance goal and provide incentive rewards fairly. This requires careful attention to the ways rewards are given and how the rewards are distinguished from compensation or (for resellers) pricing issues.

6. Emotional Appeal. The biggest performance gains come when people become emotionally engaged. With careful consideration, incentive awards should have a positive impact on emotion and organizational spirit.

7. Measurement. Three motivational outcomes should be measured: active choice—choosing to do the targeted work in the intended manner; commitment—persisting over time; and mental effort—thinking clearly.

8. Analysis and Feedback. The incentive program must be analyzed against the performance objectives and costs, with information recycled in order to adjust future programs.

This information was compiled from the Incentive Research Foundation at www.theirf.org.

Greed is good. It's not just an iconic line spoken by Gordon Gekko, the fictional character played by Michael Douglas in the movie Wall Street. When it comes to business it rings fairly true. Money, along with power, probably motivates more employees and builds a bigger, stronger business than praise or pretty offices. That's why some companies wave carrots, like cash or other bonuses, in front of employees' faces to get them to work just a little harder.

And, the facts prove it works.

According to a study published by the nonprofit organization The Incentive Research Foundation, properly constructed incentive programs can increase performance by anywhere between 25 percent and 44 percent. But, they are only effective if done in ways that address all issues related to performance and human motivation.

The paper, "Incentives, Motivation and Workplace Performance: Research & Best Practices," which was conducted by researchers for the International Society of Performance Improvement and funded with a grant by the Incentive Research Foundation, analyzed incentive programs by conducting surveys and interviews with business executives whose organizations use incentives.

The study noted when programs are first offered for completing a task, a 15 percent increase in performance occurs. When asked to continue toward a goal, research showed their performance soared by 27 percent due to incentive programs. The study also found that incentive programs that run for a year or more produced an average 44 percent performance increase, while programs running six months or less showed a 30 percent increase. Programs of a week or less yielded a 20 percent boost, according to the research.

The study also identified five conditions under which incentive programs work best: current performance is adequate; the cause of the inadequate performance is related to deficiencies in motivation; the desired performance type and level can be quantified; the goal is challenging but achievable; and the focus on promoting a particular behavior does not conflict with or override everyday organizational goals.

That being said, Newton, Iowa-based The Vernon Company recently revamped its recognition program, which recognizes individuals based on sales volume. Andrea Smith, Vernon Company's recruiting specialist, explained employees are allowed to choose their awards and, whenever possible, are recognized in-person.

"Motivation is the single most-powerful strategy used to promote performance and positive behaviors," Smith said.

The program was retooled to overcome several challenges, she explained. The previous program included gift items that were "outdated and impersonal" and the company felt the gifts needed to appeal better to men and women and its multi-generational workforce.

The new program not only is geared more specifically to the individual employee, Smith said it is better aligned with company-wide trends and minimum sales requirements. It also developed additional recognition opportunities for account executives in the local markets within the company.

The Vernon Company recommended reward levels for sales volumes up to $10 million, and gift levels starting at $250 and ending at $2,000.

It's not just about the money at The Vernon Company—its new program also includes a variety of different types of pats on the back. Additional recognition includes congratulations from Vernon Company senior management, special seating at the company's annual national sales meeting, mention in the district and regional newsletter, a write-up in the corporate newsletter and note of the million-level recognition on business cards, Smith commented.

Study results did not show whether gifts or recognition other than cash motivated employees.

"The researchers cited a lack of sufficient research to isolate the relative motivational value of cash versus non-cash awards, or to determine whether or not companies can get the same or more motivation for less money by using non-cash awards," according to the study.

No matter how companies attempt to recognize employees, it seems that something is better than nothing.

A complete copy of the study is available for $50 from the Incentive Research Foundation. For more information, visit www.theirf.org.