Incentive schemes got a lot of bad press back n 2013, especially in the banking sector when incentives focused on sales results, which ended up with a huge number of mis-selling claims. Since then incentive schemes in many organisations were refreshed to add a focus on behaviour as well as profit, but once again incentive schemes are coming under fire.
This time the furore surrounds Tesco and their recent accounting troubles. How could their top executives miss that the company had overstated its profits by £250 million? Jonathon Ford in the FT has a suggestion,
“50% of top executive bonuses were dependent on the level of trading profit. They were not incentivised to ask level-headed questions about the precise nature of those trading profits.”
As with the banks and their incentive schemes, the problem is that the wrong scheme will always give you a bad result. Hopefully, your existing incentives haven’t caused you the type of trouble Tesco now find itself in, but if it isn’t working what can you do to fix it?
Intrinsic motivation is ignored
Intrinsic motivation refers to the idea that employees do a job well because they enjoy their role. If your employees aren’t intrinsically motivated then their focus remains on rewards and employees will do just what is necessary to get the reward. Employees do the job because they have to and as a result the interest in their role falls and performance suffers. Behavioural research shows that this can motivate people to engage in fraud more willingly.
The Fix: You should evaluate the criteria for receiving rewards to ensure a component of the programme is aligned with your business values and vision, and rewards not given only for the achievement of sales target but also the manner by which your employees present the organisation (customer service improvements, assisting colleagues etc).
The bonus is not a motivator
Many studies have highlighted the fact that when asked what motivates their employees, senior leaders and managers answer: money. But ask the employees what motivates them then money usually only just makes it into the top five. These days bonuses encourage the wrong type of motivation which will only undermine the business.
The Fix: Understanding what makes your employees tick is vital to the success of the program. Rather than assuming you know what motivates your employees you need to ask them, this can be done through surveys, in meetings and by informal feedback.
Competition ruptures relationships
Too much emphasis is put on forcing people to compete for rewards, e.g. only the employee with the highest sales this month gets the reward, rather than focusing on teamwork and co-operation. For each employee that ‘wins’ and receives a reward there are many more others who feel they have ‘lost’. And if there are only a limited number of rewards then employees can see each other as obstacles to their success. This can result in sabotage, keeping quiet about issues or trying to curry favour with their manager.
The Fix: When determining the criteria that you will reward consider them carefully. Incentivise your staff for not just meeting targets but also elements such as co-operation and make sure that every employee has an equitable chance of achieving their targets.
Billions of pounds are spent by organisations on incentive schemes every year, and numerous studies put the performance improvements at anywhere between 25% and 44%. But in order to achieve these levels for your organisation you need to ensure that your incentive programme is properly planned, implemented and monitored. If you can do this then not only will you will build a reputation for rewarding stellar performance, which will help you attract and retain the best people, but you’ll also avoid the kind of situations that organisations like Tesco find themselves in.