Ten Costly Misconceptions about Incentive Programs

By Robert Cowen

Most organizations can achieve a greater improvement in key performance indicators (KPIs) by avoiding some common incentive program misconceptions.  To that end, I’d like to offer some guidance to offset common misconceptions:

Misconception 1: Incentive programs should be used primarily to solve short-term problems.

Response: Incentive programs are often set up to be a “shot in the arm” to improve sales, introduce new products, collect more money, and so forth.  Unfortunately, because there is almost no residual effect, performance levels revert to preprogram levels at the conclusion.  From my experience, incentive programs that are designed to run continuously can sustain KPI performance improvements of at least 20 percent and only require about two hours worth of labor cost per employee per month.  Management should be elated with a return on investment (ROI) like this and also question why an incentive program should not be permanent.

Misconception 2: In order for an incentive program to be effective, a lot of money must be spent.

Response: Studies show that incremental incentive-related improvements top out at around 3 percent of payroll.  With a few exceptions, spending two hours of labor cost per employee/month should be enough; anything more will decrease your ROI.  The keys to success are how the program is administered and how the rewards are distributed: reward the daily homework, make work fun, pay immediately, and offer a choice of valued rewards.

Misconception 3:  It takes substantial time and resources to create and administer an incentive program.

Response: I take my hat off to those who create, implement, and manage incentive programs, especially the short duration ones.  The problem is that a short-term program receives little or no help from outside the department.  KPI data is often manually extracted from various applications and manually input into spreadsheets and databases.  If some degree of automation is created, it must be updated with each new program.  A permanently operating incentive program (with an excellent ROI) will have strong management support; thus, resources will be extended to create a flexible support infrastructure.

Misconception 4: Incentives should be rewarded only for achieving long duration goals (monthly, quarterly, and annually).  

Response: Rewarding employees for achieving “big picture” objectives is a good practice.  However, it does not address the needs of Gen X and Gen Y employees who need constant reinforcement and praise.  More success will be achieved by breaking down large activities into their smallest measurable components and rewarding them as they occur (i.e., “rewarding the daily homework”). 

Misconception 5: Incentive games and their random payouts are silly and counterproductive.

Response: I have found that, nine times out ten, when given a choice employees would rather play a random point-yielding game as opposed to being rewarded with a finite, consistent amount of points.  Whether it’s spin-the-wheel, draw a ticket from the fishbowl, select an envelope, or something else, random intermittent reinforcement is one of the most powerful motivators for task continuation.  Unfortunately, the proven motivational power of randomized reinforcement is not utilized in the large majority of employee incentive programs.

Misconception 6: Incentive programs should reward only the top performers.

Response: You may have heard of the superstar effect: People stop trying when they realize their chances of winning are slim.  Incentive programs should be set up to reward anyone and everyone that performs at the desired level.  However, be sure to put the proper amount of thought and research into setting the thresholds for reward. 

Misconception 7: Incentive programs should only reward team-based achievements.

Response: Teams are great for creating employee bonds and thus quite helpful in reducing early-stage employee turnover.  However, team rewards can may times lead to social loafing, expressed as “I don’t have to work that hard; my team has got me covered.”  To prevent this, team-based rewards should only be used in combination with individual rewards.

Misconception 8: Refillable debit cards and retail and restaurant gift cards are not as effective as tangible incentive rewards.  

Response: The fact that debit cards and gift cards do not have the tangibility of merchandise is outweighed by the choice and value they provide.  Incentive catalogs offer a limited selection of items, and the cost of the merchandise is more expensive.

Misconception 9: There should be a few large prizes with a high value.  

Response: Expensive, trophy value prizes are another “nice to have” feature, but that postpones the reinforcement of frequently being rewarded.  Finite incentive budgets will generate more behaviors that are positive if the employee can enjoy the benefits of their actions often.

Misconception 10: You have to do it all yourself.  

Response: Many employers are unaware that there are companies that specialize in the creation, implementation, and management of employee incentive programs.  They have in-depth knowledge and expertise in the field of employee motivation and incentives.  Consider outside assistance, and test their familiarity with challenges like yours, carefully evaluating their recommendations.  Be sure to question how they make their money and what type and duration of service agreement is required.

Robert Cowen is with Snowfly (www.Snowfly.com), a provider of Internet-based employee incentive and loyalty programs.  For more information, contact him at 248-324-1161 or email rcowen@snowfly.com.

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