Are Incentive Programs Bound to Fail in Today's Economy?

For the record - I'm not advocating that companies stop using incentives.  I'm just thinking out loud in this post.  Call it a thought experiment - a topic to bounce around and beat up. 

Is Risk Too High?

Just like everyone else I'm a bit concerned with the economy.  I'm seeing the DOW jump up and down.  I'm watching POTUS talk about the hard work ahead of us as a country.  I'm reading about layoffs.  The media isn't helping as they play this to the hilt trying to tease out a few more rating points.  I'm seeing the same info as your employees and your fellow managers.  I'm seeing a lot more risk.

Risk - perceived or real - holds us back from making decisions.  Risk stops us from acting on good ideas.  Risk slows everything down.  The natural reaction to a slow-down is to do something to address it.  Normally, a company would run an incentive program to influence people to sell more, save more, cut costs, etc.  However, is today's risk level too high for incentive programs to work?  Will anyone really try something new and different to hit a higher level of performance - and risk missing the number?  Is there enough reward in the incentive equation to nullify the risk most employees and channel partners feel?  I don't know.

Balancing the Equation

What I do know is as risk goes up the reward must go up as well.  It's a balance issue.  Effective incentive programs are designed to find that balance and tip it in favor of doing something versus not doing something.  I'm just wondering if the current business environment is too risky for most participants.  I'm concerned that most incentive programs designed and conducted in this environment might fail simply because the risk is so high no award value will tip the balance.  When given the choice between keeping a job and earning a few more dollars, points, credits, etc.,  most participants will choose the job.  It's a tough, tough world right now.

In order to offset risk, a program would normally increase the reward.  Unfortunately, increasing the reward value is not a good option in today's climate either.  No one wants to  be on the front page of the paper offering big incentives for employees. 

So incentives may not be the best response to the current economy.

What's the Answer?

While every business is different and every company has a different set of constraints, I'm thinking that focusing more on the recognition side of the equation versus the incentive side is a company's best bet for the near future (see this post if you don't know the difference between incentives and recognition.)  Companies should refocus on values and publicly recognizing those that demonstrate the values of the organization.  Now is a great time to turn up the volume on your recognition efforts that highlight behaviors that define your organization.  Remember, recognition is an act -not an item.  The cost to publicly shine a light on someone who has done something that reinforces your company's values costs very little.

During this time of increase risk, it may be a fool's errand to try to motivate staff to take on more risk - but it may the optimum time to reinforce behavior that contribute to positive attitude, helping other departments, reassuring other employees and taking care of existing customers. 

Comments

[Liz Cobb, CEO Makana Solutions]

Many of our customers are using incentive comp to focus employees on profits and or new market opportunities and are getting real business results in both areas. I would argue strongly in favor of continuing to use incentives. What's really important is not whether to use them, but how to use them. When the plans are clear and aligned with strategy, incentives can actually turn the business around.

www.makanasolutions.com

[Paul Hebert]

I think you're right on the money - how is issue not "if". My concern is that adding more pressure to perform - in this environment - could add to the risk the employee or channel participant feels and actually reduce motivation. If designed correctly - and communicated correctly - I do think they could be effective. Point being - be careful. Adding more pressure may be the last thing to do right now.

[Liz Cobb, CEO Makana Solutions]

We have lots of best practice information on our website to help companies be careful. Also, our planning tool contains a great set of graphs that help communicate earning potential and what is really important for a rep to do. Our clients that use the graphs to a) come up with the right design and b) communicate the plan changes have found them to be extremely helpful in generating positive motivation.

[Amy Trueblood, Account Manager]

This article reinforces what many of my clients are doing to survive the recession while maintaining and preserving competitiveness. In times of success, companies are clearly meeting and even exceeding their business objectives and may have a lot of reasons to reward and recognize employees. Alternatively, as the author suggests, economic downturns are the best time to focus on rewarding and recognizing employees for contributing to the positive attitude in the workplace, participating in successful team projects and providing high quality customer service. To read my blog post on this topic please visit http://www.awardsnetwork.com/blog/2009/04/recognition-programs-boost-emp.html.

[Paul Hebert]

Thanks Amy for the comments. Nice post on your blog as well!