By Jeffrey Scott
Incentives—rewards meant to encourage and motivate employees to be more
productive—all too often backfire and create unintended consequences: internal
squabbles, cynicism, distraction, and diminished performance. The trick with
incentives is avoiding the pitfalls and common myths.
Following are the four most common myths regarding incentives:
MYTH 1: Incentives should be focused only on what a person can control.
While this makes sense on face value, it ignores a huge factor in
motivation: peer pressure. Many
managers and contractors think that a person needs to have full and complete
control in order for an incentive to be effective, but this just isn’t the
case. You can create a very quick and dramatic improvement in your company
with the use of a peer-based incentive program.
For example, an entire division or company can share in a bonus (e.g., when
everyone comes to work on time all week, the entire company gets free coffee
and donuts the following week.) Think about the corporate world where stock
options are awarded to employees as incentives, and yet the entire company has
to perform in order for the stock value to rise. Peer-based incentives can
be used to create change in many different areas: reducing equipment loss and
vehicle damage, improving client retention, etc.
MYTH 2: An incentive should be holistic.
Some business owners try to wrap up all the critical success factors
into an incentive, but this can be confusing to track and can send mixed
signals to the incentive recipient.
For example, I recently worked with a contractor who thought up a comprehensive
incentive for his office staff. It was very artful in engaging his office
manager and addressing all the key aspects of her job, except that it was too
complex; it covered too many facets of her job and made it hard to prioritize
what was important. Incentives should be straightforward, easy to memorize, and
easy to calculate. If your incentive recipient cannot wake up in the
morning, remember his or her incentive, it is probably too complex.
MYTH 3: Incentives will create a change in behavior.
Unfortunately, managers often put incentives in place expecting them to
be a silver bullet and magically fix all that ails their companies. The
important truth is, an incentive is merely a mechanism for how you measure the
change, i.e. the improvement. But, in
order to motivate the change, you need to give employees consistent feedback, and
engage them in discussions on how the company is performing as compared to
goals. Your employees need to understand why the change is important. Throwing
money at them is not a replacement for explaining why it is important to hit
the goal. Incentives will not automatically create accountability.
MYTH 4: Incentives must pay out monetary rewards in order for employees
to buy in.
This myth further states that monetary rewards should be significant in
order for employees to really care. Neither is true. I have seen incentives programs
with no money at all attached to them work wonders.
Take, for example, a company with four crews, and imagine that these
crews compete against each other each week to see who can finish the week most efficiently
under budget. Each crew is rated on how well it performs compared to its budgeted
time. The results are shared in percentages; for example, 100 percent means
they met budget, 90 percent means they beat budget by 10 percent, and 105
percent means they were over budget by 5 percent. Whichever crew ends the week
with the lowest percentage, wins.
In fact, when a company is setting up a monetary-based incentive program
for the first time, it may make sense to do a dry run and execute it with no
money attached. This will allow you to work the bugs out of the system, and
then later, if you wish, to add a monetary reward.
If you do create an incentive based on money, it should be self-funding.
The incentive should be paid out based on incremental profits earned by the
company based on the incremental results achieved. When incentives are self-funding,
everyone wins.
Jeffrey Scott, MBA, author and consultant, grew his landscape company into a successful $10 million enterprise, and he's devoted to helping others share the same success. He facilitates PEER GROUPS for landscape business owners who want to transform and profitably grow their business. For more information, go to www.JeffreyScott.biz, email Jeff@Jeffreyscott.biz, or call (203)220-8931.
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