How to Design an Employee Incentive Program

An effective incentive program is a complex process involving clear company strategy and goals, well-thought-out rules governing the winning of appropriate awards, detailed budgeting and carefully calibrated communications.

Where to begin? "It's not simply about 'do this, get that,'" says Tina Weede, CITP, CIS, CRP, president and CEO of Atlanta-based Peerless Performance. "It's about, how do I create an emotional connection with a person to either modify their behavior or drive their performance? It truly requires an enterprisewide solution, and not just a platform from which you can redeem points from a curated catalog. It starts with building an ROI model and goes all the way through the program design and execution."

Here, Weede and other experts offer best practices on how to create a program sure to motivate, where employees and employers both reap the rewards.

 
Setting the direction  
"To begin with, you need to know what your goals and objectives are," says Scott Siewert, president of Cumming, Ga.-based Fab at Incentives. "Probably 50 percent of companies running an incentive program just figure out a new destination and repeat the old rules."

That's a problem, as the business landscape is changing at breakneck pace. "Every five years at a minimum, and preferably every two to three years, you should look at your program and determine: Are we doing the right thing for our company, or has this just become an annual trip?" says Siewert. "If it's the latter, you'd do well to tear the program apart and rebuild it from the ground up."

Don't set the goals too broad. While an increase in sales is a standard objective, both the program planner and the executives running the program should be specific about what they want to achieve.

For example, how big of a sales increase do you want to aim for? A program seeking a 12 percent boost in sales would indicate a greater effort is required than one striving for a 2 percent increase.

"I think it's good to drill down another level beyond that," says Mike May, CITP, CMP, president of Irving, Texas-based Brightspot Incentives & Events. "Is it a certain product for which you want to increase sales? Is it a certain target market, or is there a specific geographic or vertical consideration? There may be other goals, such as to roll out a new product, train the sales force, or teach them the features and benefits of a new product. Any of those can affect the design of the contest."

Another key consideration is the audience, says May, who notes that an incentive program for a corporation's internal call-center employees, who earn $50,000 a year, should not be the same as one for the field sales reps whose salaries are $150,000.

 
Establishing rules
Once a program's goals are clearly formulated, it's time to create the rules that will help you achieve those goals; these parameters must be crystal clear to participants. If they're too complex, many employees might ignore the program altogether.

It is also important that the rules give everyone a chance to win. When participants are in different parts of the country, for instance, economic disparities should be accounted for by perhaps basing awards on both a cut-off and a percentage increase. So, a coastal dealership that achieved sales of, say, $1 million over the year would earn the trip prize, while a middle-America dealership that increased its sales from $500,000 to $550,000 could also reap the reward.

Plan for unintended consequences. "Try to put yourself in the mind of participants," Siewert advises. "How could they game the system?" And then there are tax considerations. While the specifics can be complex, a general rule of thumb (and point to communicate) is that incentive awards of any kind are taxable as ordinary income.

 
Determining the format
A key decision for travel-based incentive programs is whether it will be open-ended or close-ended. In an open-ended scenario, anyone who hits their goal will attend, whereas in a close-ended program, only a set number, like the top 10 percent or the top 100 sellers, will get to go on the trip.

"There are pluses and minuses to both," says Dahlton Bennington, CMP, CMM, director of meetings and incentives for Dania Beach, Fla.-based PROfound Planning. "Open-ended is nice, because if performance is high and your organization is trending well, you can recognize as many winners as hit their metric. If you're having a great year, you're going to have a lot of attendees. In a closed system, you're only taking a set number of top performers. The benefit to that is you'll know in advance how many people are going, so you can budget accordingly."

Keep an eye on the program while it is taking place to spot problems as they arise, such as an underperforming region or a competitor putting out a major new product, so you can course-correct rather than wait to assess the damage after the fact.

"It's a best practice, regardless of whether it's a closed or open program, to consistently look at the rankings and who's trending to qualify, and then forecast where you think your numbers are going to be at least on a six-months-out, three-months-out and then one-month-out basis," Bennington says.

Communicating -- or not
Even for a midsize company, running a travel program for a few dozen winners and their partners can easily run into six figures, so getting it wrong is a waste of big money. Ignoring the communications aspect of program is a sure way to get it wrong.

"The number-one mistake of incentive programs today is undercommunicating and underfunding promotional communications," says Mike May. Underfunding is often driven by organizations that think the reward itself will motivate people. Maybe the reward is the key motivator, but if you just do a launch followed by one or two emails, you'll have a great program that no one knows about, he adds.

"Keeping the word in front of them, that's what motivates," notes Siewert. "On a yearlong program, if you're not touching somebody at least once every three months, you're not doing a good job. You should be touching them six times a year, and if you can, every month."

A big splashy launch with the award front and center -- particularly if it's travel -- is important, but it's not enough. Mailers should be sent home, so significant others can get excited about the program, too. Posters and promotional products also are great ideas, as emails are easy to overlook.

"I think being able to communicate often and consistently to all eligible associates in an incentive program is critical for success," says Bennington. "That can mean creating and posting workplace displays with inspiring photos of the award destination, and/or sending monthly rankings that show everyone's standing in the race toward qualifying for the award."

 
Moving the middle performers
Typically, 10 percent of your employees are self-motivated high achievers who always strive to excel. They will be regular, repeat winners. Another 10 percent are the employees you wish would get another job, preferably with your competitors; these are people who will never win or even try to win the award.

Then there is the remaining 80 percent, the vast middle who make up the "B" players who might not win the big prize but, if the program is properly planned and communicated, will feel they have a shot and be motivated to try (and in the process likely to improve their numbers). Smart companies, says Weede, "understand that moving the middle provides the greatest incremental lift, if you can get those people engaged."

It's a matter of basic math: Getting that 80 percent to increase their sales by 1 or 2 percent ultimately will amount to more revenue than getting the top 10 percent to improve by 10 percent.

"The way you can do that is with a two-tiered program," says Siewert, "whether that's offering a points-based merchandise and gift-card program as a second-tier award, or using a lower-tiered trip. So, the top people get to go on a Greek cruise, and the middle-tier participants go to Mexico. That's where a company gets higher revenue and return on investment."

 
Parsing the dealer difference
There are substantial differences between an incentive program run for a company's in-house sales force and one aimed at external dealers and distributors. For one thing, participants in an in-house program will be more inclined to listen when their bosses talk, so communications can be easier.

But there also are some substantial differences between a dealer/distributor who sells one company's products exclusively and one who sells one type of product sourced from many companies -- think of a John Deere dealer versus a tractor dealer who sells many brands, John Deere among them.

An incentive program for an exclusive dealer can have a lot in common with one for in-house sales reps, which generally is aimed at selling more products, whereas programs for a nonexclusive dealer are heavily aimed at selling more of "our" products and less of "their" products.

Among other things, nonexclusive dealers almost certainly will be offered reward programs by many of the companies whose products they sell, so the incentive planner is not just trying to keep the participant motivated to sell more of their own items, but also has to make sure his or her program is better -- or at least as good, at any rate -- as that of their competitors. This is one reason companies tend to spend more on these programs than they do on in-house incentives, May says.