Does Your Incentive and Reward Program Focus Too Much on the End of the Game?

I've argued that incentive programs should focus on behaviors - and behaviors that your target audience can control.  I've also gone on record for not rewarding results.  Most incentive programs that go wrong typically focus more on outcomes than the things that lead up to - and help ensure - those outcomes.  I personally believe that rewarding outcomes is what drove some of the "unethical" and short-sighted behavior that created the recent problems on Wall Street.  Too much focus on results - not enough focus on how you get to those results.

A good post on Seth Godin's blog yesterday brought that home.  It's a short post (aren't they all) but the operative part is...

"I was just informed by the resident baseball fan that the Mets won a game by a walk. By a walk! 

Of course, in a 4 to 3 baseball game, you don't win by a walk. You win because before the walk, you scored three runs, and you win because before the walk you limited the other side to three runs.  The walk was merely the last event.

I think his post makes the point exactly.  In a typical sales incentive program - the "sale" is merely the last event.  Or...the product launch was merely the last event.  Closing the books on time was merely the last event.  Reducing costs by 10% was merely the last event... you get the picture.

I almost (notice I said almost) would go as far as to say incentive programs should focus on every event EXCEPT the last event and recognition should ONLY celebrate the last event.

The event you seek and the behaviors that lead up to them are fundamentally different - and the way you reward and recognize them should be fundamentally different as well.

 
 

Comments

[Justin Ahlstrom]

I would challenge your hypothesis that incentive plans should focus on behaviors, not results. In my experience, I have too often found that behavior-based incentives are very good at increasing the targeted behaviors, but are not always effective at impacting results. We get the wheels spinning, but don't always get very far.

If we were incenting on the baseball game, I would expect us to pay for the win, not the final walk. As management, we need to respect that as long as the team followed the rules, a win is a win.

At the end of the day, the business needs results. How we get there is important (and needs to be addressed through performance management and incentive plan language/controls), but should not be the primary driver in a plan.

[Heather]

I have been repeating this concept for some time related to a sales incentive I manage--it's been a difficult concept for most to grasp. The examples you include are right on. Thank you.

[Paul Hebert]

Heather - thanks for the comment. It is a hard thing to get your head around since we spend so much time talking about getting results.

Justin... I hear what you're saying. I'm not against results - what I am against is an incentive program that is purely about results. When you use results as your only reward criteria it creates an empty space between the "start" and the "end." People can only control their behavior - which isn't a result. As an example - say sales are down for a particular product because the company had a less innovative product. A results only program would not only penalize the sales force - but mask the real problem - innovation. I've seen many companies who use the "results" of the incentive program as evidence that sales isn't doing their job.

Even in baseball, individual positions are rewarded based on their specific "behaviors" (ie: errors, IRA, BA, RBI, etc.) not just "wins."

If a program is designed correctly there are awards for the steps in the process as well as the final result.

The question then is... using your words - should there be a "primary driver" of an incentive - or should their be various drivers that each have a little different values - that total a successful program?

[Michael Stus]

I like the idea of incenting for the “behaviors” as long as they are measurable and that they have been proven to correlate with the ultimate goal, in this case a sale. I think people sometimes get confused when they hear the word “behaviors”, associating it to subjective judgment criteria rather than concrete statistical measurements; I have a related blog post here: http://www.canidiumblog.com/2009/05/coaching-with-mbos-during-periods-of-revenue-decline/
Your baseball wins analogy is great; there has been much discussion of the problems with using this statistic to incent pitching proficiency because of the win /loss fallacy: http://efficientbaseball.blogspot.com/2007/04/wonloss-fallacy.html

[Paul Hebert]

Michael - thanks for the comment. I agree - measurable and connected goals/behaviors. BTW - Loved the post on pitching - my son is a pitcher and I keep telling him to worry less about the Ks and worry more about contributing on offense and defense as an infielder after he pitches the ball. Two things he can have some control over. Great comments.

[Michael Camiolo]

Paul - from what I've seen, baseball players rarely receive incentives linked to secondary metrics like errors, IRA, BA, RBI. Generally incentive payments limited to achivements like Playoff Victories or being designated MVP.

It's the same in the sales world. Tracking metrics like customers seen, demo's given, and customer interest level is a great idea. But you should NOT pay on them. Not only are some of these self reported numbers; but incentive plans are self funding only when sales are achieved.

[Paul Hebert]

While in the past that has been true - more and more we're seeing individual stats included in contracts. A-Rod has a "home run" bonus and some have weight clauses, etc. It is becoming more common. However, I think we agree and disagree on one thing - I don't think you should "pay" for the individual steps in a sales process in the traditional sense - but incentives (non-cash) do provide a guiding motivation to do the things that result in sales. Once you cross the line to include pay for all those little things you do set up a weird situation where income can be increased without an increase in sales. In most cases you do want the overall cost of selling something (including pay and incentives) to be less than the profit generated. Just good business sense.