THE WAY JOSEPH RILEY sees it, incentive programs are a two-way street.

But when Riley, senior vice president and corporate sales manager at Boston-based Eastern Bank, took over the sales and customer service operation at the bank in the mid-1990s, the incentive program was going one way while the company was pointed in another. Two one-way streets, each headed in a different direction.

“The program was not consistent with the strategic objectives of the company, one of which was to be a leader in customer service,” says Riley. Instead, it was geared toward selling a particular product, regardless of whether that product was in demand by customers. Customers were missing opportunities to try new products and services. And, because the awards were nothing special, the staff wasn't that motivated by the program.

So Riley and his staff, with a directive from the bank's senior management, set out to re-route the incentive program and to help evolve the culture of the company. “We wanted to change the fundamental way our salespeople approach customers, and to instill a culture that was much more proactive and service-oriented,” he says.

First, they established a training program to teach the sales staff how to satisfy customers — not just sell them. “The products themselves are secondary,” he says. “We used the incentive program to fashion behavior that services customers by finding out what their needs are and providing for those needs.” In addition, they ramped up the awards structure, providing a two-tiered, open-ended system. Quarterly cash bonuses were awarded to individuals who hit their well-defined behavioral targets, and top achievers earned a spot in the brand-new Pinnacle Club.

“It has proven to be phenomenally motivating,” says Riley, for both the sales and customer service staffs, who qualify for incentives. “Being on the front lines in customer service used to be just another job at the company. Now, they are envied.” And Eastern Bank's executives are happy because the objectives of the people who face their customers every day are consistent with their own objectives.

Don't Get Burned

Aligning incentives with strategic goals is critical, but the truth is, most companies don't do it well. Some do it so poorly that their incentives actually backfire and demotivate the people they were meant to inspire — whether it's because people don't feel that they can win, or the program's rules motivate them to behave in ways that sabotage customer service, or they end up forfeiting long-term sales for short-term gain.

“Incentives are like fire,” says Rodger Stotz, vice president, managing consultant at Maritz Incentives Inc., St. Louis. “They can keep you warm, or they can burn you.”

In fact, in a recent survey of 1,002 randomly selected employed adults done by Maritz, 55 percent of respondents said that they were not happy with their companies' incentive programs. Why? They perceived them to be unfair, unattainable, or poorly communicated, says Paula Godar, director of marketing communications at Maritz.

Because there are so many moving parts to a healthy incentive program, fixing what doesn't work is no easy task, experts say. “There are five critical elements to the success of any incentive program,” says Alan Townsend, director, marketing services at USMotivation, Atlanta. They are: design, promotion and communication, administration and management, awards, and management commitment. “Each of those critical elements offers a whole field full of land mines,” he says.

Perhaps the most common land mine is setting sales goals so high that most people believe from the start that they don't have a chance to win. That's what happened at Sunmark Federal Credit Union, Schenectady, N.Y., where vice president of sales and service Tom Weidl completely revamped the incentive program when he arrived in 1996.

“You don't want to create competition within your own organization,” says Weidl — yet that's just what their contest did. “We were motivating maybe a handful of people — the superstars who win all the time.” The rest of the staff was either resentful or didn't care, and that created some friction. “You can create a high percentage of losers in your organization,” he says.

So he scrapped the program. Individuals now earn incentive pay for each sale they make during a promotion; at the end of the month, each sale is entered into a drawing for merchandise. So, if someone made 20 sales in a given month, they would have more chips in the hat than someone who made eight sales. However, the person with fewer chips still has a decent chance to win.

“We no longer award the top, the best, the most, or the greatest,” he says. He pays out no more in awards than he did before, his sales staff is happier, and Sunmark's revenues have grown about 20 percent annually since the new program was established.

It's all about immediate gratification, he says. He believes that rewarding employees less, but more frequently, produces better results than a single, larger award at the end of a campaign.

Open-Ended Solution

Another way to make everyone feel that they can win is to design an open-ended contest in which people compete not against each other, but against themselves. The best open-ended strategies motivate all employees, from top achievers to low producers. “That means that any participant who accomplishes an established goal or reaches an expectation earns,” says John Farrell, senior director, marketing strategies, Carlson Marketing Group, Minneapolis, who considers this to be the best way to go.

Goals should be established for each individual based on his or her past performance and objectives, with a realistic “stretch factor” built in, says Farrell. If salespeople feel that the goals are unrealistic or unfair, they will not be motivated.

The other benefit of an open-ended program is that it is self-funded through the incremental sales that are achieved. The down side is that the planner does not know the number of rooms needed or the program budget until the contest is over.

If companies must control the number of winners for budgetary and logistical reasons, closed-ended programs, where a set number of winners (typically the top 10 percent) is established in advance, can be a useful way to reward top performers. But some think that they just don't work. “Research shows that these programs are dumb because the top 10 percent would have done it anyway,” declares Bruce Bolger, president, Selling Communications, Irvington, N.Y.

Louise Anderson, CEO, Anderson Performance Improvement, Hastings, Minn., warns that closed-ended programs do not even guarantee higher sales. “Your top 10 percent could sell less than they did a year ago and still walk away with the award.”

Stotz suggests as an alternative a two-tiered program to motivate the “B” players as well as the top achievers. “A typical structure would be to have the presidents club for top performers and, to use a golf analogy, the par club for those people who either achieve or surpass their quota.”

Another approach is to create performance bands, where individuals who earn say 10 percent over quota qualify for one level of awards, while those who generate 15 percent increase qualify for the next level of award, etc. “You want to keep that individual always reaching and never settling,” says Michelle Smith, vice president, business development at O.C. Tanner, Salt Lake City, Utah.

Watch What You Ask For

There's a fine line between using incentives to motivate employees to perform and paying for performance that you would have gotten in the first place.

“A lot of people think a bad incentive program is one that doesn't work because no incentive dollars were paid out,” says Bill Grassie, president, Strategic Incentive Innovators, Overland Park, Kan. “The worst type of incentive program is one where you pay out incentive dollars and you don't get anything you weren't already going to get.” He estimates that 90 percent of incentive dollars are wasted on performance that would have been achieved anyway.

Take the example of a company that launched an incentive program to boost international sales. The company agreed to pay a $1,000 incentive for every international sale made in a four-month period.

“What they were doing with that incentive was trying to get people who don't think about selling internationally to start thinking about it,” he says. In reality, they were not selling internationally because the salespeople did not understand the market and the products, and did not have any good leads. The people who earned on this incentive were the people who had already developed international business, says Grassie. “They were already interested in the international product; they already had the prospects; they were already getting ready to close this business — and they were thrilled.”

The best programs instill new behaviors in participants. “Whatever you're trying to get them to do, four months from now, you can take the incentive away and they're going to continue to do it because there truly is a value proposition to it — more sales down the road.”

His solution for the company that is trying to boost international sales would be to develop a program that rewards the sales staff for generating a certain number of prospects each month, or for learning about the international products via training. Motivating employees to achieve those goals will pay dividends for the employee, who will earn commissions on future sales, and for the company, which will generate international sales long after the incentive is over.

Don't Underestimate the Power of the Awards

Even if an incentive program is well-designed and implemented, it can fall apart if the awards are not exciting.

“It's very important that the awards are suitable for the audience,” says Don Jagoda, president of Don Jagoda Associates, Melville, N.Y. “A lot of times awards are selected as a personal preference of the boss, but they may not be right for the participants.”

Asking people what awards motivate them is a good way to start, suggests Farrell. If it's a group trip, the destination has to be consistent with expected performance, so for top salespeople, it needs to have the “wow” factor. This is particularly important for dealers, who are bombarded with programs. “They are comparing programs,” says Farrell. “How do you one-up the competition to make your program better?”

It's also important to consider the demographics of the winners, and how they are changing. A growing number of employees, particularly Gen X-ers, prefer lifestyle and experiential trips to traditional hot spots. For them, trips that feature cooking school or golf school may be more motivating than a European capital or a beach destination.

Family incentives are growing in popularity, too. Stotz says some companies offer multiple destinations for group trips: one that is more family-oriented, such as a trip Disney World, and another that's more adult-oriented. “Instead of taking 1,500 people to one destination, they might take 750 to destination A and 750 to destination B.”

Most important is to give the qualifiers choices. “A big-screen TV is fine for everybody who doesn't already have a big-screen TV,” Townsend says, but it's not for everybody.

Companies also need to constantly promote the program and communicate the rules and results on a regular basis. “You really have to keep knocking on the door to let them know that the campaign is going on and what the results are,” says Richard Gaeta, president of Premier Incentives, Marblehead, Mass. “Promotion seems to be a major missing ingredient on the part of companies.”

In fact, the Maritz Incentives survey cited lackluster communication and feedback about the program as a major demotivator. “People who had weekly or monthly communications felt they had a better chance to win than people who only heard about it at the beginning of the program or quarterly,” says Godar.

However, it all comes back to the rules — not the rewards. That's where most of the planning time should be spent, says Gaeta. “It's endemic in the industry,” he says. “Companies are too focused on the front end — the rewards, where they're going to go next year. They need to be more concerned about the back end, establishing the goals and objectives and the ROI.” Once that is done, he says, the appropriate rewards can be established.

In the end, says Eastern Bank's Riley, it's all about being strategic. “Make sure the objectives of the [incentive program participants] are consistent with their managers' objectives.”

Set Some Goals

There are two golden rules of incentive program design, says David Lockhart, sales manager, lending protection, at CUNA Mutual Group, Madison, Wis. “Make it fun to the point where employees look forward to achieving, and create a sense of urgency to perform every day.” In designing programs, Lockhart strives to motivate employees to perform at the highest level from start to finish, not just at the end. “After two months (of a three-month program), the expectation is that employees would be two-thirds of the way there. But what we found was that they were 40 percent or 50 percent there.” In many cases, they sold more in the last 30 days than they did in the first two months. So, he recommends creating thresholds along the way. If the plan is to pay out a certain amount in incentives to employees who reach a threshold of 20 sales in three months, create goals along the way where employees earn at various intervals. This creates a sense of urgency and keeps them striving to go beyond the 20 sales.

“It's kind of like a football game,” says Lockhart. “In the last 47 seconds, the teams go back and forth and score two times. What if they played like there were 47 seconds left in the game all the time?”

8 Simple Rules for Effective Program Design

  • MAKE IT SIMPLE

    Don't over-engineer incentive programs. If you can't explain the objectives and guidelines of the program in a few sentences, then you need to re-think it.

  • RUN ONLY ONE PROGRAM AT A TIME

    When two or three departments within a company run incentives at the same time, it dilutes the efforts of salespeople on all fronts.

  • DON'T RUN INCENTIVES BACK-TO-BACK

    You don't want salespeople thinking ahead to the next campaign in the event this one is not up their alley.

  • KEEP IT SHORT

    Programs should last no longer than necessary to achieve goals. If you run them forever, there's no urgency. In a call center, a 30-day program can be effective. For a sales incentive, six months to a year is more typical.

  • KEEP IT OPEN-ENDED

    Avoid creating losers through closed-end incentive programs, and don't be afraid to have too many winners. If the plan is well-designed, it will fund itself.

  • CHOOSE APPROPRIATE REWARDS

    Rewards have to be meaningful to change behavior or spur performance. Make sure that the size of the award correlates with expectations.

  • COMMUNICATE

    Promote the campaign heavily and publicize your results clearly and consistently on a regular basis. Ask employees what motivates them.

  • USE INCENTIVES TO GET WHAT YOU WANT

    Make sure the results that are sought are consistent with the company's objectives.



SOURCES: Bill Grassie, Strategic Incentive Innovators; John Farrell, Carlson Marketing Group; and Joseph Riley, Eastern Bank