HOW TO RUN A SUCCESSFUL BUSINESS INCENTIVE PROGRAM
Ranked #1 in the Industry
The company's president wanted to run through the office shouting the news: sales for the first half of the year exceeded projections and expectations!
When he reflected on how the company arrived at this point, he had little doubt that instituting incentive programs companywide had been one of his best moves. From sales staff recognition to safety incentive programs to the recognition program, each one supported the organization's core values.
Employees fully understood how their performance affected their co-workers and the company overall. This organization was proof that if you motivated and rewarded workers, you could positively impact the bottom line.
The news was cause for a celebration. The company president wanted the entire staff to feel great about what they had achieved together.
One of the most critical questions facing companies today is: How do you improve employee morale and productivity while still reining in costs?
Slashing incentive programs is not the answer. In fact, when designed properly, a corporate incentive program can be one of the most powerful business tools available to companies today. According to the experts, the return on investment from a properly run incentive programs can be four-to-five times that of other capital expenditures.
Consider the possibilities. A sales incentive can boost incremental sales as well as market share. Need some help launching a product or jump-starting a slow mover? Time and again incentive promotions have proven their value to sales and marketing efforts.
Reward and recognition programs are just as effective with non-sales employees. From reducing absenteeism to improving safety to enhancing employee commitment and morale, incentive management does the job. It helps keep workers engaged and motivated despite the distractions of everyday life.
Numerous studies have shown that if a company wants high customer satisfaction and retention ratings, it needs these highly motivated employees who stick around. Furthermore, low turnover means lower costs associated with finding and training new people.
One of the biggest mistakes an organization can make is to assume that, in a down economy, their top people aren't being recruited by the competition. When the economy is up, talent is critical. When the economy is down, talent remains critical.
U.S. companies spend approximately $30 billion a year on incentive award programs, according to a study from the Incentive Federation. That's a strong testament that incentive systems must be doing something right.
Whether you're an experienced user of the performance incentive or new to the concept, this comprehensive how-to e-booklet outlines proven principles and methods for running an effective employee recognition program.
CREATE AN INCENTIVE GAME PLAN
An incentive must support specific business goals or it is meaningless. From the beginning, it's important to establish what the performance incentive program is designed to achieve and how those objectives tie in with the company's overall strategy.
To design effective objectives for both new and existing programs, arrange a brainstorming session with colleagues who will be involved. If possible, also include a few employees who will be participating in the final business incentive group.
This mix of people will provide valuable insight into changing market conditions or special characteristics of your customers.
Make a list of the company's most pressing needs or issues, both sales and non-sales related. Some of these topics will pop up every year, others will be new. As your team works, keep the following questions in mind:
What are the company, industry and overall economic climates?
What factors may affect our business today and into next year?
What are my competitors' strengths and weaknesses?
What are my product's or service's strengths and weaknesses?
Based on the answers to these questions and the list of specific corporate issues, you and your team will develop a clear picture of what business goals your company incentive will support. Make sure the objectives don't contradict other company goals. For instance, if an objective could adversely affect safety or quality, you're creating trouble. Overall, incentive program goals should be:
Simple and specific
Steer away from broad terms like "increase sales”. Rather, state "increase sales of computer systems 10 percent between June and December;'
Have an ambitious agenda, but don't go overboard. Also, compare your goals to past history. If your company has never come close to its objective, make sure you can support why this time will be different.
If you can't measure incentive performance in specific terms, it will be very difficult to prove to management the program was a success. Also, you want to be able to compare the incentive solutions against past and future initiatives.
Incentive promotion programs should be run when they will do the most good. For instance, a safety incentive award program should operate during peak rush periods. Also, adjust your objectives to suit fluctuations in the business cycle. A sales force incentive program aimed at increasing sales during a slow period won't come close to peak-period numbers.
KNOW YOUR AUDIENCE
You should know as much as possible about the incentive program participants. Either gather information via employee questionnaires or by talking at length with human resources. A good conversation with department heads as well as employee representatives also helps.
Have an idea about participants both as members of a department and as individuals. For instance, knowing how each unit is involved in the development and distribution of the company's products and services will help in choosing participants
On a more personal level, learn as much as you can about participants' hobbies or interests. A sales director for a pharmaceutical company knew his people so well, he never made any program announcements on Monday mornings during football season. He accepted he wouldn't have most people's full attention until after lunch.
Know basic information such as the ratio of males to females and married to single as well as median income. Also, keep in mind today's workforce spans a broader age range than in the past, is more ethnically diverse, is increasingly composed of non-traditional families and features women entering more traditionally male-dominated jobs. This is one reason a variety of incentive tools targeting different business goals and workers, rather than just one or two employee incentive programs, works best in U.S. companies.
MAP A STRATEGY
Once you've chosen the who and the what, you can design the incentive program. This is the fun part where planners can really flex their creative muscles. Here are a few ideas to keep in mind.
Motivate the individual and the group
Organizations that want to encourage teamwork while still bringing out the best in individuals can use a series of overlapping incentive plans.
For instance, an energy company implemented an incentive pack program that clearly connected companywide performance objectives with specific results at three levels: refinery, work group and individual. Employees didn't really have a connection to the company as a whole; their view was through smaller pieces. Reward and recognition programs at each level helped the employees understand how their work affected the big picture.
If one work group slacked off, none of the employees received points at the plant level. However, they could earn points at the other two levels. Points were added to a debit card on a monthly, quarterly and yearly basis, depending on which business goals they corresponded to. Upper management knew the incentive productivity was a success when they noticed foremen and supervisors discussing greater strategic plans with their subordinates.
80/20 is a guideline - not a commandment
You must take care of your top performers, but ignoring the producers of the remaining 20 percent is unhealthy. This middle group, about 60 percent of your sales force, is your bread and butter. When your stars aren't hitting, these people can be the difference between flat sales and disaster.
The goal of any program incentive targeting this group is to set the groundwork for their entrance into the upper tier. Since top performers seem to claim all the incentive system attention, the future top producers hidden in the middle group may not feel valued. As a result, mid level performers are the most susceptible to outside recruitment.
A software firm introduced a merchandise catalog with eight tiers to help incentive motivation to this middle group as well as its sales stars. The opportunity to win merchandise throughout the program kept a good portion of this middle segment selling, even when they knew they wouldn't qualify for the upper levels. Since this group was so large, a few more sales per person proved to be significant.
Motivate throughout the program
Consider running spurt incentive programs under the umbrella of a longer performance incentive program. These short-term incentive solutions give you the flexibility to focus on certain products and to respond quickly to the market or to special circumstances.
In addition to spur-of-the-moment staff incentives to help struggling products, short performance incentive programs include the fast start, where sales and new displays made in the early weeks earn extra points or specific merchandise awards. To bolster the middle period of a program, for instance, offer bonus points for marketing efforts made during a traditionally slow three-week span. For a strong finish, if this has been a problem in the past, offer appealing merchandise awards for late sales force incentive.
Spurt programs aren't limited to sales incentive plans. A southern California burger chain runs an ongoing suggestion program, but offers special types of employee incentive programs for new franchises as well. For the first three months at new restaurants, workers who submit ideas that are implemented choose an item from a merchandise catalog. They are also included in the quarterly companywide sweepstakes for all employee suggestions.
Look beyond the numbers.
Different people have different strengths. For example, offering a rookie of the year or most improved employee award recognizes new contributors and motivates them to continue their hard work. Other valuable designations could include most new accounts, biggest increase in existing accounts, best thank you to a client and highest profit margin overall or for a particular project. Some of these winners may come from the regular top performers, but a majority of them will not. Recognizing these achievements sends the message that your company values something in addition to final sales figures.
DEVELOP A BUDGET
The goal is to strike a balance between a best practice award large enough to be motivating and one that fits your budget. Successful employee incentive programs should pay for themselves, but you will still need to spend money up front for administrative costs, promotion and corporate awards.
There are a variety of ways to develop a budget. For a sales incentive, some organizations allot about four percent to seven percent of the base pay of the average participant per winner. Non sales awards usually garner about one percent of base pay per winner. Other planners prefer to figure five percent to 10 percent of the value of the expected improvements whether sales or safety, as the total cost of the sales incentive program.
The two most common types of budget designs -fixed and open- have their pros and cons. A fixed budget caps the total number of winners, such as the top 20. This type of quality award program allows you to establish a firm budget at the start and is easier to plan financially. However, such recognition award programs also tend to salute the people who probably would have performed well anyway. Close-ended business incentive gift programs work best for groups of top performers with fairly equal track records.
An open-ended design doesn't put any limit on the number of winners. Whoever reaches the goal, earns the award. The downside is these incentive programs tend to generate higher administrative costs, and the total cost is unknown until the campaign has ended. However, if designed correctly, extra sales generated will more than cover such costs.
Regardless of the method, the majority of your budget should be spent on corporate awards, about 70 percent to 75 percent. The rewards for an incentive program serve as a visible reminder to the recipient and co-workers of their value to the company. This is one of the most important reasons that care and consideration must be put into the selection of the promotional incentive gifts.
Promotion is next, claiming about 15 percent. Administration usually requires about 5 percent. The remainder of your budget goes to training, if necessary. Incentive rewards won't improve productivity if employees don't have the skills or knowledge to change their behavior.
FOCUS ON PROMOTION AND PRESENTATION
Without a strong promotional incentive campaign, your incentive program may never get off the ground. Make communications a top priority before the launch as well as during the incentive program marketing.
If your company has an in-house graphics department, get them involved at the beginning. Also, experienced award manufacturers or distributors should be able to offer their expertise.
Your communications portfolio should contain at least these six pieces:
1. Teasers drop a hint about the coming program and are often accompanied by a small gift related to the program's theme or grand prize.
2. The announcement piece clearly states the rules, objectives, structure, length, performance awards, etc. Also include contact information for questions or comments.
3. Kickoff materials drum up enthusiasm for the program. If time and budget allow, plan activities around the program launch.
For instance, a construction company catered lunch for the workers at each of its sites to announce a new suggestion program. Instead of the usual speeches, managers kicked things off by asking for ideas during the luncheons. In addition, all attendees received whistles for their key rings imprinted with the program logo and slogan.
4. Use promotional pieces during the program. Remember, a message has to be delivered several times before it's completely absorbed. The more you reach out to people, the more successful your incentive employee motivation program will be.
5. Mailings to update participants on their progress should be distributed on a regular schedule. Email works especially well for this purpose. Or you can set up a web site where participants check their progress and learn about changes to the incentive plan program.
A short three-month incentive program, for example, might require updates every two weeks, while a yearlong corporate incentive calls for six-week postings. Don't be lax about distributing updates. This is a wonderful opportunity to get in front of participants on a regular basis.
Congratulatory mailers at the end of the incentive program inform winners of their standings and celebrate their success.
Immediate recognition is the key.
6. The post-program celebration should be considered part of the promotional cycle. How a company recognizes its top performers reflects its opinion not only of the employees and their achievement but also of the incentive program. If you want people to pay attention to the incentive and reward program, next time around, grab their interest with the celebration.
Write a story for the employee newsletter or company web site detailing what each winner did to earn his or her corporate award.
If it is in the budget, go all out with an awards ceremony luncheon or dinner. This is usually a given with a sales incentive program, but don't skimp on non sales celebrations.
EVALUATE THE RESULTS
It's important to analyze the success of the performance incentive program both from the participants' and administrators' perspectives.
Ask the administrators if they encountered any problems and what they thought worked particularly well. Be sure to explore all the intangible aspects of the incentive employee bonus program, the little things that can really make a difference. In particular, get their input regarding the objectives of the program and any ideas for future awards.
Ask yourself questions such as:
Did the reward incentive program achieve its goals?
Which awards were most popular with recipients?
Were there any unexpected benefits?
Is there anything that should be done differently next time, particularly with the objectives or promotional efforts?
If possible, speak directly with recipients to learn how they felt about the staff incentive program. If you think they would be more honest responding through an anonymous survey, make one available.
Detail what worked and what didn't to help those who facilitate the next employee incentive plan. This important analysis, documented and forwarded to management, will prove the success of the campaign and point out ways to refine future projects.
Knowing all you can about your participants will help guide your personalized award choices. Tapping into their interests or lifestyle makes the award that much more appealing.
In particular, offer a wide variety of awards whenever possible. Today's workforce is more ethnically diverse than ever before and spans a broader age range.
Select merchandise with trusted, brand name recognition and warranties. For ongoing programs, merchandise should have continuity of some kind. Choose incentive awards that can be delivered within a reasonable time frame. Quick turnaround time ensures participants connect their behavior or achievement with the reward.
An auto manufacturer found out the hard way the importance of offering a range of merchandise award choices. Its companywide catalog program linked to customer satisfaction targeted a diverse group. Everyone was involved, from the top sales associate to the person who washed the cars.
While the sales department consistently met its customer satisfaction goals, the service department did not.
Upper management had stocked the catalog with items that matched their own lifestyle. Award choices completely missed the body workers and mechanics wants and desires.
Less than six months after management changed the performance incentive award mix, customer satisfaction ratings jumped 30 percent, with the biggest changes occurring in the service division.
Q. How often should I check an incentive program's progress?
A. Administrators should conduct official check-ups every quarter for longer programs, even though once per month might be better. Also, assess incentive programs at critical points, such as right before or after the launch of a new product or service.
Look at multiple data sources, such as award redemption, participant feed
back and customer comments. Also, don't overlook simple word of mouth.
If a program proves to be in trouble, don't hesitate to make changes midstream. If caught early enough, you'll be able to fix the trouble without losing the value of the promotional incentive.
Q. Should I arrange for individual, personalized business gifts for consistent top performers?
A. If you have the time and the money, go for it. The more personal the reward, the greater the motivational impact. Keep in mind, however, other employees will learn of these corporate gifts.
Q. What are some of the pros and cons of online incentive programs?
A. A large percentage of incentives offer some Web-based elements, especially sales and peer recognition programs. Online incentives offer immediate recognition; a high degree of flexibility and customization; and less labor and administrative costs, just to name a few advantages.
The biggest drawback: Online rewards can be seen as cold and impersonal. Most organizations now realize the actual congratulations and distribution of the awards must be done in person and in front of peers.