4 reasons incentives can backfire - and what to do
about it
By Jeffrey Scott
Incentives—rewards meant to encourage and motivate
employees to be more productive—all too often
backfire and create unintended consequences: internal
squabbles, cynicism, distraction, and diminished
performance. However, when used correctly, they can
produce wonderful results. The trick with incentives is
avoiding the pitfalls and common myths.
Following are the four most common myths regarding
incentives:
MYTH 1: Incentives should be focused only on what a
person can control.
While this makes sense on face value, it ignores a huge
factor in motivation: peer pressure. Many managers
and contractors think that a person needs to have full
and complete control in order for an incentive to be
effective, but this just isn’t the case. You can create a
very quick and dramatic improvement in your company
with the use of a peer-based incentive program.
For example, an entire division or company can share
in a bonus (e.g., when everyone comes to work on time
all week, the entire company gets free coffee and
donuts the following week.) Think about the corporate
world where stock options are awarded to employees
as incentives, and yet the entire company has to
perform in order for the stock value to rise.
Peer-based incentives can be used to create change in
many different areas: getting crews out on time,
reducing equipment loss and vehicle damage,
improving client retention. You should not have a
problem with your employees accepting this incentive
as long as the rules are clear and as long as you clearly
explain why the incentive is being applied
companywide (or division wide) as opposed to
individually. Treat your employees like adults and
explain the reasons clear and simple, and you may be
surprised at how well your employees will enjoy the
peer-based approach.
MYTH 2: An incentive should be holistic.
Some business owners try to wrap up all the critical
success factors into an incentive, but this can be
confusing to track and can send mixed signals to the
incentive recipient.
For example, I recently worked with a contractor who
thought up a comprehensive incentive for his office
staff. It was very artful in engaging his office manager
and addressing all the key aspects of her job, except
that it was too complex; it covered too many facets of
her job and thus made it hard to prioritize what was
important. Incentives should be straightforward, easy
to memorize, and easy to calculate. If your incentive
recipient cannot wake up in the morning, remember
his or her incentive, it is probably too complex.
MYTH 3: Incentives will create a change in behavior.
This is not true. Unfortunately, managers often put
incentives in place expecting them to be a silver bullet
and magically fix all that ails their companies. The
important truth is, an incentive is merely a mechanism
for how you measure the change, i.e. the
improvement. But, in order to motivate the change,
you need to give employees consistent feedback, and
engage them in discussions on how the company is
performing as compared to goals. Your employees
need to understand why the change is important.
Throwing money at them is not a replacement for
explaining why it is important to hit the goal.
Incentives will not automatically create accountability.
Most employees want to do a good job, but they often
lack the tools or understanding needed to do the job
well.
An incentive is not meant to replace a job description
and is also not meant to replace the company
operations manuals or handbook.
MYTH 4: Incentives must pay out monetary rewards in
order for employees to buy in.
This myth further states that monetary rewards should
be significant in order for employees to really care.
Neither is true. I have seen incentives programs with
no money at all attached to them work wonders.
Take, for example, a company with four crews, and
imagine that these crews compete against each other
each week to see who can finish the week most
efficiently under budget. Each crew is rated on how
well it performs compared to its budgeted time. The
results are shared in percentages; for example, 100
percent means they met budget, 90 percent means
they beat budget by 10 percent, and 105 percent
means they were over budget by 5 percent. Whichever
crew ends the week with the lowest percentage, wins.
In fact, when a company is setting up a monetary-
based incentive program for the first time, it may make
sense to do a dry run and execute it with no money
attached. This will allow you to work the bugs out of
the system, and then later, if you wish, to add a
monetary reward.
If you do create an incentive based on money, it
should be self-funding. The incentive should be paid
out based on incremental profits earned by the
company based on the incremental results achieved.
When incentives are self-funding, everyone wins.
ABOUT THE AUTHOR
Jeffrey Scott, MBA, Consultant, author, grew his
landscape company into a successful $10 million
enterprise and is now devoted to helping others
achieve similar success. He facilitates PEER GROUP for
landscape business owners who want to profitably
grow their businesses. In their first year his members
achieved 27 percent profit growth. To learn more visit
GetTheLeadersEdge.com.
about it
By Jeffrey Scott
Incentives—rewards meant to encourage and motivate
employees to be more productive—all too often
backfire and create unintended consequences: internal
squabbles, cynicism, distraction, and diminished
performance. However, when used correctly, they can
produce wonderful results. The trick with incentives is
avoiding the pitfalls and common myths.
Following are the four most common myths regarding
incentives:
MYTH 1: Incentives should be focused only on what a
person can control.
While this makes sense on face value, it ignores a huge
factor in motivation: peer pressure. Many managers
and contractors think that a person needs to have full
and complete control in order for an incentive to be
effective, but this just isn’t the case. You can create a
very quick and dramatic improvement in your company
with the use of a peer-based incentive program.
For example, an entire division or company can share
in a bonus (e.g., when everyone comes to work on time
all week, the entire company gets free coffee and
donuts the following week.) Think about the corporate
world where stock options are awarded to employees
as incentives, and yet the entire company has to
perform in order for the stock value to rise.
Peer-based incentives can be used to create change in
many different areas: getting crews out on time,
reducing equipment loss and vehicle damage,
improving client retention. You should not have a
problem with your employees accepting this incentive
as long as the rules are clear and as long as you clearly
explain why the incentive is being applied
companywide (or division wide) as opposed to
individually. Treat your employees like adults and
explain the reasons clear and simple, and you may be
surprised at how well your employees will enjoy the
peer-based approach.
MYTH 2: An incentive should be holistic.
Some business owners try to wrap up all the critical
success factors into an incentive, but this can be
confusing to track and can send mixed signals to the
incentive recipient.
For example, I recently worked with a contractor who
thought up a comprehensive incentive for his office
staff. It was very artful in engaging his office manager
and addressing all the key aspects of her job, except
that it was too complex; it covered too many facets of
her job and thus made it hard to prioritize what was
important. Incentives should be straightforward, easy
to memorize, and easy to calculate. If your incentive
recipient cannot wake up in the morning, remember
his or her incentive, it is probably too complex.
MYTH 3: Incentives will create a change in behavior.
This is not true. Unfortunately, managers often put
incentives in place expecting them to be a silver bullet
and magically fix all that ails their companies. The
important truth is, an incentive is merely a mechanism
for how you measure the change, i.e. the
improvement. But, in order to motivate the change,
you need to give employees consistent feedback, and
engage them in discussions on how the company is
performing as compared to goals. Your employees
need to understand why the change is important.
Throwing money at them is not a replacement for
explaining why it is important to hit the goal.
Incentives will not automatically create accountability.
Most employees want to do a good job, but they often
lack the tools or understanding needed to do the job
well.
An incentive is not meant to replace a job description
and is also not meant to replace the company
operations manuals or handbook.
MYTH 4: Incentives must pay out monetary rewards in
order for employees to buy in.
This myth further states that monetary rewards should
be significant in order for employees to really care.
Neither is true. I have seen incentives programs with
no money at all attached to them work wonders.
Take, for example, a company with four crews, and
imagine that these crews compete against each other
each week to see who can finish the week most
efficiently under budget. Each crew is rated on how
well it performs compared to its budgeted time. The
results are shared in percentages; for example, 100
percent means they met budget, 90 percent means
they beat budget by 10 percent, and 105 percent
means they were over budget by 5 percent. Whichever
crew ends the week with the lowest percentage, wins.
In fact, when a company is setting up a monetary-
based incentive program for the first time, it may make
sense to do a dry run and execute it with no money
attached. This will allow you to work the bugs out of
the system, and then later, if you wish, to add a
monetary reward.
If you do create an incentive based on money, it
should be self-funding. The incentive should be paid
out based on incremental profits earned by the
company based on the incremental results achieved.
When incentives are self-funding, everyone wins.
ABOUT THE AUTHOR
Jeffrey Scott, MBA, Consultant, author, grew his
landscape company into a successful $10 million
enterprise and is now devoted to helping others
achieve similar success. He facilitates PEER GROUP for
landscape business owners who want to profitably
grow their businesses. In their first year his members
achieved 27 percent profit growth. To learn more visit
GetTheLeadersEdge.com.
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