Ideally, an incentive program should pay for itself out of the profits generated by increased sales volume or cost savings. In sales programs, companies generally spend about 10% of incremental sales on the program itself.  In essence, you are trading a portion of the additional profit by rewarding participants for additional sales that you currently do not have. 

If your objectives are not based on incremental sales, but on less financially quantifiable improvements such as customer satisfaction or retention, consider the awards an investment that will help your company grow and provide long-term gains.

It's a fact that most companies offer their employees competitive salaries and benefits. In return, the vast majority of these employees work hard and make a concerted effort to do a good job to justify their compensation package. But in our highly competitive world, a good job doesn't necessarily do it anymore, especially when industry leaders are using every means available to motivate an extra level of performance from their people. Today, these leaders are using incentives as part of their company's marketing mix to help accomplish a wide variety of business objectives. They have found that these programs are more likely to accomplish the objectives set for them when employees are motivated by positive, immediate and certain consequences. And, important to the bottom line, they've found that these programs - when properly designed and executed - pay dividends in added sales and profits and happier employees.

If your company is typical, it employs many different types of workers, most of whom have little in common with one another other than the fact they work for the same company. If it's your job to motivate all of these groups, you might consider structuring separate programs for each employee group (perhaps a group trip for salespeople, merchandise for top administrative personnel, etc.). However, your best bet - one that will work for all groups - may be to select a debit-based reward card that allows each employee to accrue award points in a personal account. Once earned, employees can use this reward card to purchase the items that most interest (and motivate) them. Few other incentive concepts are easier to implement or produce better results for sponsor companies. The thing to remember is this: when it comes to motivating employees through the use of incentives, we have the solutions, no matter how complex the problem.

Incentive programs pay for themselves in incremental profit (revenue that's generated by increased sales, cost savings, greater efficiency, higher rates of attendance and improved performance). To establish a budget for your program, first determine what you expect to attain in incremental dollars, then assign a percentage of that to pay for the incentive program. Companies typically allocate between 20% to 50% of incremental dollars to the program. Of that, 10% is used for administration, 20% goes for promotion; the balance (70%) funds the rewards. Here's a tip to make sure you're funding your program with adequate dollars to motivate performance. If your program is extended (six-months or longer), reward potential should represent 3% to 5% of a participant's salary. If your program is shorter, say 60 to 90 days, consider providing participants with the opportunity to earn rewards valued between 6% and 8% of their salary.

If your experience with an incentive program didn't produce the results you expected, we suggest you ask yourself the following questions:

1. Were the goals you set meaningful and attainable? If not your employees may have resented not having been asked to contribute to the goal-setting process. Nothing turns participants into non-performers more quickly than being asked to do something that's beyond their reach.
2. Were the rules of the program communicated effectively to the participants? Everybody enrolled in the program must know precisely what's expected of them during the course of the program.
3. Did you keep your participants aware of their progress throughout the program period? If not, they probably lost interest somewhere along the way. Participants tend to contribute extra effort when they know they're close to a reward.
4. Did the rewards you offered for extra effort or a special achievement truly appeal to your participants? This is key to the success of any incentive program because individuals work harder to earn rewards that are meaningful to them. In future programs consider giving your participants the freedom to choose, rather than running the risk of pre-selecting rewards that are not worth the effort.
5. Did you budget in advance of the program? Planning a budget will give you a good idea of what you can expect to invest in a rewards program.
   
   
   
   
    

Define the objective(s) of the program; e.g., a 12% YOY increase in sales or a 15% reduction in workers' compensation claims. Then translate that into a dollar figure. Using this information, establish a budget based on the incremental profit projection. Develop a rules structure that defines the program goals, benchmarks and timelines. Then establish a promotion plan of action that effectively (and regularly) communicates these factors to all participants.
Select the reward(s). Remember, when you get personal in terms of that offering (that is, provide rewards that are personally relevant), people get inspired. And you get results. Establish a mechanism for measurement and feedback that lets participants know how they're doing. When the program is over, evaluate how it worked. Celebrate!

Remuneration, by definition, is the act of paying someone for a service. An incentive, on the other hand, is something that incites or has a tendency to incite someone to action. Ideally, employees and distribution partners (brokers, wholesalers, dealers, etc.) should be offered both … a salary/benefits package that adequately compensates individuals for the work they do and a line-up of incentives that recognizes and rewards their above-average performance or a special achievement.

"Just give me money ... that's what I want." The Beatles sang about our passion for cash more than three decades ago. And in many ways, things haven't changed. Ask people what type of reward they want, and they'll say "cash." But as research has demonstrated repeatedly, cash rewards don't motivate extra effort.

Why? Because when companies try to motivate their employees and/or their distribution partners using additional cash, the "reward" is typically thought of as compensation and is spent on necessities. Don't believe us? Then take a look at the results of a survey conducted by Wirthlin Worldwide (March 1999) of 1,010 people who were asked how they spent their last cash reward, cash incentive or cash bonus. Their response was as follows:

• Bills - 29 percent
• Do not remember - 18 percent 
• Never received cash reward/bonus - 15 percent 
• Gifts for family - 11 percent 
• Household items - 11 percent
• Savings - 11 percent 
• Special personal treat - 9 percent 
• Vacation - 5 percent
• Something else - 2 percent

The fact is a dollar doesn't go as far as it used to. In a February 2000 survey conducted by AEIS, 17% of the American employees polled said they had received a year-end cash bonus. A full 32% of these respondents admitted that the cash bonus did not improve their work performance.

Additional studies support the view that noncash rewards are more effective than cash, suggesting that the staying power of noncash incentives is the primary reason. Unlike cash, noncash rewards such as incentive reward cards, travel, merchandise, and gift certificates are memorable and give recipients "bragging rights." It is this staying power - the fact that noncash rewards tap into the psychic income needs of a person - that ensures that physical rewards such as a TV motivate individuals far better than a check.




 
 

In today's business environment, two types of rewards exist - "sticky" and "slippery." Sticky rewards are memorable or, in other words, they "stick" in the recipient's mind and reinforce the relationship between the reward earner and the reward provider.

Slippery rewards, on the other hand, have a fleeting impact and often "slip" the recipient's mind. Cash - unfortunately for those companies that attempt to motivate employees and distribution partners using this commodity - is the most "slippery" type of reward because it's typically confused with other compensation and therefore forgotten.

That said, let us recap additional reasons why "sticky" noncash rewards motivate individuals to higher levels of performance than "slippery" cash rewards ...

NON-CASH REWARDS

• Provide tangible symbol of achievement
• Provide something physical to show off
• Are socially acceptable to "brag" about
• Provide lasting reminder of achievement
• Reinforce association with sponsor company
• Appeal to recipient's need for psychic income (social acceptance, increased self- esteem, self-realization)
• Provide strong emotional appeal to participants' personal wants and interests
• Deliver a higher perceived value; actual dollar value becomes secondary
• Provide a 3-to-1 return on investment compared to cash: cash programs cost 12 cents per incremental dollar netted by increased performance, versus 4 cents per dollar for noncash programs
• Successful non-cash programs cost 3% to 5% of annual compensation budget

CASH REWARDS 

• Intangible … disappear into wallet
• Difficult to show off to friends, etc.
• Boorish to brag about
• Recipients often can't recall what they purchased with cash reward
• Minimal association with sponsor company due to minimal trophy value of reward
• Used to satisfy basic needs (car payments, groceries, etc.)
• No "warm fuzzies" attached to cold currency
• A dollar is a dollar; participant attaches no greater emotional or inspirational value to cash
• Not cost-effective; requires three times the incentive investment compared to non-cash
• Programs cost 5% to 15% of annual compensation budget

Research shows that people attach more value to a reward they find personally meaningful versus one that is selected for them. In fact in a March 1999 AEIS survey, 63 percent of respondents said their loyalty would increase if the employer offered an ongoing incentive program that allowed employees to choose rewards that were personally relevant. In other words, it is keenly important to give award winners the opportunity to choose because, given that opportunity, they can be expected to work harder and bond more closely with the sponsor company.

We know potential reward earners value the opportunity to choose awards that are personally relevant. But that information only helps if we also know the types of awards these individuals consider "personally relevant." So in February 2000 AEIS asked more than 400 recipients who preferred noncash awards what they wanted to receive as a performance reward. Here's what they told us ...

• Individual Travel - 32 percent
• Award Card - 31 percent
• Catalog Merchandise - 31 percent
• Retail Gift Certificates - 29 percent
• Night On The Town - 29 percent 
• Company Selected Gift - 17 percent

But AEIS didn't stop there. In the same survey they asked for feedback on a number of other important questions that influence reward selection. Responses from potential reward recipients indicated the following:

 
Rewards rated most highly:

• Can be redeemed anywhere
• Can be tailored to the recipient's needs
• Have no expiration date 
• Offer a choice of gift selections

This confirms that potential reward earners are more effectively motivated when they have the opportunity to redeem awards that match their individual lifestyles and desires.