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A 21st Century Incentive Program to Drive Engagement

By Allan Schweyer, Chairman, EEA, and Rodger Stotz, Chief Research Officer, IRF

“Almost certainly…some kinds of outcomes you can incentivize and others are much harder to influence through incentives. I don’t think anyone would argue that we can operate without incentives, but what are they going to be in order to be effective for each situation, task and person? The right question is ‘How do we artfully and wisely design these programs.’”

- Dr. Laurie Bassi, September, 2010

It is generally accepted that employee engagement and performance can be driven by the right mix of incentives and rewards. Until recently, few questioned the use of incentives in encouraging behavior change and higher performance. Research conducted by the Incentive Research Foundation (IRF) and others over the past 20- years has established the usage and performance improvement aspects of incentives in business.

Yet today, where and even whether incentives and reward programs have a place in the modern workforce is being questioned, not necessarily because skeptics believe they don’t motivate workers, but because they believe the program outcomes and impacts are becoming increasingly more difficult to measure, manage and control. In new research, conducted the authors and released in February 2011 by the Incentive Research Foundation (IRF), the challenges around 21st Century Incentive Plan Design were studied.

Poorly Designed, Misdirected

According to our research and the opinions of most of the experts consulted, the greater complexities of motivating creative, non-routine workers using incentives and rewards, has led to a higher frequency of poorly designed or misdirected programs. Poorly designed rewards, incentives and recognition programs can produce negative results, lack motivational appeal, or cause unintended consequences. When this happens, it is likely to cost the organization a significant amount of wasted time and money and perhaps lead to a cynical, disengaged workforce, organizational damage and, in some extreme cases, societal harm.

Our research (building on that of many others) leaves little doubt that incentive program design and implementation, including measurement and ROI, is critically important in today’s workplace environment ─ considerably more so than in the past. And while the incentive plan designer must consider the overall context, including the type of worker or team they’re attempting to motivate, it is far from agreed that in designing an effective rewards program ─ even for knowledge workers ─ that one or the other of intrinsic or extrinsic, contingent rewards must be used.

We are seeing the evolution of an effective blend of both, or a more inclusive approach of any appropriate reinforcer that is contingent, valued and top-of-mind. What is clear from our research, including the opinions of the great majority of our experts, is that incentive, reward and recognition programs must be more tailored today than in the past. Careful design must make allowance for the many different ways in which workers are motivated.

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Consistencies and Best Practices

Yet there are also consistencies and best practices to guide designers. Knowledge workers, for example, are more likely to be driven and engaged by recognition (now/that type rewards) than contingent incentives (if/then rewards). Where incentives are used with creative workers, they should be designed to drive desired outcomes rather than encourage specific behaviors. And any design must incorporate measurement to determine its effectiveness.

Extrinsic, contingent rewards should be tied to performance goals rather than task completion, solving problems, or hitting specific quantifiable targets. In general, designers should balance the best use of extrinsic incentives versus intrinsic rewards and recognition, depending on the type of worker, the assignment, the work environment, the desired outcome and the duration of the program amongst other factors. In every case, designers should build in the appropriate levels of measurement, in many cases including ROI analysis.

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Seven Steps to Success

In summary, incentive and reward program designers should:

  • Take advantage of the PIBI Model (see research paper reference below) by using it as a checklist of key questions that need answers. Also consider Dan Pink’s flowchart and the guidelines we propose in Figure 1 and Appendix D of the research paper.
  • Articulate and consider what is the program trying to achieve or address? More sales? Lower absenteeism? Quality? Safety?
  • Think about the program context, including which workers the program is targeted to – Factory floor? Administrative? Sales? Researchers? – and whether they are primarily creative or task-oriented.
  • Think about the unintended consequences and potential adverse impact of the program. Will the outcomes it aims to drive impact other parts of the organization? Is the program susceptible to “gaming”? Will it encourage undesirable behaviors?
  • Consider whether the program is in balance with other key drivers of performance and employee engagement.
  • Include communications, well-planned implementation and on-going monitoring and refinement.
  • Build in metrics and ROI measures from the beginning so that you can credibly evaluate the program and make adjustments throughout.

To download the full research paper, please visit: @@http://www.theirf.org/research

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March/April 2011

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