Do you need incentives to motivate people in an environment of good management? Today’s business management philosophy and practices haven’t really caught up with the current nature of employees and the type of work they are required to accomplish. Managers historic role and even today is ‘watching the workers’, control of their work environment. Reward systems are seen as a tool for Managers and Companies to ‘motivate’ employees.
You can find ‘experts’ that say they don’t work or they do work and for the ‘right price’ will help set up a reward program for ‘motivating’ anything. So, who’s right? I’m talking reward systems that have a monetary value and a high cost to companies. We’re talking serious ‘bucks’ that companies spend on reward systems to achieve that ‘extra’ motivation.
Incentive/Reward systems are a two-edged sword. At best they are Bad (no harm no foul), at their worst they are Ugly. The only good I have seen is for the person receiving the reward although it won’t necessarily change or alter their behavior in the long term. We’re talking wasted money, lost focus, and a myriad of other problems when these go ‘sideways’.
A note here, remember when you read my blogs what my goal is: to get you to step back and think differently about the topic at hand. I am writing these blogs based on my experience in companies resolving problems that were created intentionally or just because people didn’t know any different. SMB leaders usually don’t have the experience necessary to evaluate incentive systems and look to others for that expertise or fall into the trap of ‘but everyone else has them’ or ‘I’m forced into to be competitive in the recruitment and retention of employees, or ‘mine’s working just fine thank you’. So how do you really know if yours is accomplishing what you intended. I am going to save that discussion for later.
Let’s clarify terms first, I use the terms reward system and incentive system interchangeably. Either term is a ‘IF THEN’ motivator term. If then motivators say ‘IF’ you do this ‘THEN’ you will receive that, or if you don’t you might or will receive just the opposite. So the system is the tool and the goal is to motivate people towards achievement of goals.
When the experts talk about motivation, they break it into extrinsic and intrinsic motivation. This is the first misunderstanding; money is not an intrinsic motivator. It is extrinsic and a short-term motivator. You are not changing people motivation long term with money. Right now, I am talking about extrinsic motivation. Something from outside of the persons base pay intended to motivate them to do/accomplish something. Company incentive systems are by design an extrinsic motivator. My emphasis is on extrinsic formal and informal incentive systems. Let’s not get confused, these types of systems are extrinsic motivators, usually dollar, and when effective only on short term behavior.
In another blog I will get into how the way jobs are designed and what company can do to create or influence intrinsic motivation.
Here is a general description of Incentive/Reward systems I found on the internet that I think works: Employee reward systems refer to programs set up by a company to reward performance and ‘motivate’ employees on an individual and/or group level. They are normally considered separate from salary and are usually monetary in nature or otherwise have a cost to the company. The basic principle of a reward system: you are asking an individual and or team to ‘behave’ and or accomplish certain goals over a period of time to receive a monetary reward. Looking at it simply there are two ways to motivate people to change or focus behavior, positive or negative reinforcement. I have jokingly remind leaders “if you want immediate change/focus use a cattle prod otherwise suffer with positive reinforcement long term change”.
Let’s look at some basic research on incentive systems, some general rules of thumb and a real-life example.
I generally close with a story but here’s one to start. We all know how painful calling a customer call center can be, too long on hold and all too often disconnected while on hold or during the call. Here is what I observed in a company and eventually learned it was not a lone occurrence just to this call center. Management utilized an incentive system to address two problems, long hold times for customers and decrease the time it took representatives to bring a resolution to the customer issues. The goal of the reward system was to bring down the average wait time to a preset goal and a goal for maximum time necessary to resolve customers reason for calling. Senior managers established overall targets for the group (the team), individual agents and management. Monetary rewards were earned as specific targets and improvements were achieved. Everything was very clear, ‘If you accomplish this Then you will get that’. Looks good on paper, right?
The first thing to remember in constructing or evaluating a reward system: People always act in their own self-interest FIRST. Here is how this situation played out. Employees had a visual scoreboard for calls in the queue and how long each person was on hold. Each individual made sure they had a personal timer at their workstation, so they knew how long they were taking in resolving the customers problem they were dealing with. How did the employees work together and individually to meet the goals and receive the rewards? As they saw customers in the queue approaching the deadline for wait times and they were early in dealing with their customer they would hang up on the customer and take the customer in the queue who was waiting the longest. Their response time for settling their customer call was achieved and the wait time goal was achieved. All the customer agents knew the game and when the customer that was disconnected re-connected with a new agent, they would comment on being disconnected and the agent knew to give the obligatory, “I’m sorry about that how may I help you”. Everyone wins, except the customer.
The second thing to remember about reward systems there is always a ‘dark side’ available. Always ask yourself the question, how can employees take this to the ‘dark side’ and they win but customers and or shareholders lose? People acting in their own self-interest can and do at times act in counterproductive ways as the story highlighted. The most recent public example is the Wells Fargo scandal. Executive incentives put pressure on them to meet steep sales goals. So naturally the ‘smart people’ broke these goals down to front line employee incentive and performance goals. Wells Fargo employees created over a million fraudulent accounts in their customers’ names, https://ethicsunwrapped.utexas.edu/video/wells-fargo-fraud. What happened with front line employees taking it to the ‘dark side’ was the CEO’s and his senior management teams ‘incentive’ program. They drove the company to accomplish goals that in turn would accomplish their individual and collective goals.
Too many times I have seen manufacturing production reward goals taken sideways by supervisors and line employees. Line employees are not the alone in this, the Senior Management is probably the most difficult to construct an effective reward system for. I will save the Senior Management conversation for latter.
Let’s look at what research says about the basics of reward systems. If you are even going to have a chance for motivating someone’s behavior with monetary rewards you need to set the minimum monetary reward at least 10% above what they are currently making over the period of time the reward is based on. Research shows this is the point at which you have the chance to attract people’s attention, willingness, and motivation (behavior) focused. Length of time to payout is important. The shorter the better. The longer I have to work/wait to receive the reward the less motivated I become to behave in that manner. They lose focus.
And then there is the escalating zero factor. My statistics professor explained it this way. A young couple are motivated to work hard, save their money, and buy their first house for $300,000. They are excited with their new purchase and move in. Then as bad luck would have it about six months later, they go to a parade of homes and walk into a $400,000 dollar home. Their immediate response: “now THIS is Really a nice home”. Their prior motivation was based on a $300k reward now their motivation changed to a higher price. Rewards have an escalating value in order to direct or change people’s behavior over time. What worked last time will not do it this time. If I received a $30k bonus at the end of this year will that amount motivate me next year or will it take more?
Finally, to be effective the individual or team has to feel they have control over the outcome desired. If they think they are just a clog in the wheel or don’t have the ‘tools’ to influence the outcome their motivation will be low or non-existent.
What about team/department rewards? There’s a ‘sticky wicket’. The difficulty becomes in rewarding a large group without destroying teamwork. Usually, teamwork was one of your intended outcomes along with the goals. However, a team of people is only as good as ‘it’s weakest member’. Now you have accidentally set up unintended outcomes. Anderson Corporation in Bayport Minnesota is into multiple types of rewards systems in their company. It was early into self-directed, reward-based work teams. Production team had a unit number to be produced during shift. If they made the number before end of shift the team could choose to go home or continue to work. Although there were incentives to continue to work the shift. You can see how this could create conflict amongst team members. This system is in place today.
Here are some thoughts to ponder until my next blog on the subject. What is your management philosophy about employees, that money is the only or primary motivator of people? You can lose people if you DON’T pay them enough base pay, but beyond that money is not a motivator. The best use of your money as a motivator is to pay people enough for performance of their day-to-day job to take the issue of money off the table. What has greater motivational stickiness (long term), a genuine pat on the back and thank you or some money?
In the next blog I will venture into senior management and Company performance-based rewards and typical manufacturing environment incentive systems.