What is an Incentive Program?

Incentive Magazine defines it as a "planned activity designed to motivate people to achieve predetermined organizational objectives." Simply put, it's a structured plan to get people to do what you want them to do.

Why do people do the things they do? It's because their behavior is being influenced by a variety of factors that motivate them. For instance, hunger motivates a person to forage for food. When an incentive (an object or event that is valued) is included with a specific goal, an individual is further motivated to achieve the goal. One of the most fundamental equations in all psychology is: Ability x Motivation = Performance.

Example of an Incentive Program

The Goal: Improved Attendance

Stan supervised a group of 50 people. He did a little research and came to the conclusion that each employee used an average of 10 sick days per year. He felt this seriously cut into productivity on the assembly line and he figured that cutting this figure in half, or 5 days per year, would greatly improve production figures for his department.

Stan's goal was clear: to encourage each employee to use 5 sick days per year, or less. How would he accomplish this goal? He spent some time thinking about an incentive that would be meaningful to his group, and discussed it with them. He finally decided on a catalog of gifts where each employee could choose an award in a particular price range. He came up with a budget and had it approved by management.

But how would the Improved Attendance Incentive Program be structured? If the employees had to wait an entire year to receive an award, they would probably lose interest. And what if someone had a serious illness one quarter and that ruined their chances for the award?

Stan decided that if each employee could use 1 sick day, or less, per quarter, they would be eligible to redeem an award from the catalog. This seemed to be a manageable expectation, and they kicked it off with a small party of donuts and coffee.

Each quarter, Stan called the group together and, in an impromptu ceremony, awarded the gift catalog to the employees who qualified. At the end of the year, Stan reviewed the attendance records and was able to ascertain that each employee used an average of 5 sick days that year. This was what he wanted to achieve. Three employees actually received an award each of the four quarters that year for perfect attendance.

Stan decided to run a similar incentive program the following year.

How to Develop an Incentive Program

#1 Establish Objectives

Identify what goal/objective needs to be accomplished, for example: improved attendance, increased sales of a particular product, etc. The objectives must be simple, specific, and obtainable. Begin with a clear, briefly stated objective and communicate it to all participants.

#2 Outline the Strategy

Build the foundation of the Incentive Program carefully, expanding on the methodology to be used. The structure of the program should detail exactly who is the target audience, and anyone else who will be influenced by the program. The size of the group is important to the budget of the program, as well as the ability to communicate clearly and measure the results accurately.

Other considerations are geographic boundaries or sales regions, legal considerations, family issues, the length of the program and timing, individual goals or team goals, and of course, the reward.

#3 Measure Performance

Define both quantifiable and qualitative goals that can be measured, and keep it simple. It might be necessary to look at historical data and come up with an average in order to define a particular sales goal. The goal needs to be fair to all involved, and obtainable by everyone.

#4 Establish the Budget

Depending on whether the program involves sales or non-sales personnel, the budgeting will be different. In general, the three elements of budgeting include: 1) number of participants, 2) length of program, 3) expected results.

There are two types of award budgets: 1) closed-ended, and 2) open-ended. You would need to determine the maximum costs involved with a closed-ended program, and an estimate of costs involved for an open-ended program.

In a sales program, the primary rules are: 1) Anywhere from 5% to 10% of additional (incremental) gross sales during the incentive period can be applied to the total cost of the program, and 2) The cost of the incentive awards should equal 5% of all compensation for the program period.

In a non-sales program, it is more difficult to put a monetary figure on the value of "improvement," but some measures are possible that involve increased productivity, improved attendance, and improved safety (fewer traffic tickets, for instance). The budget is then determined by the "value" the company will realize from the improvements made by the Incentive Program.

#5 Select the Perfect Award

It is important to select the correct award because if the individual is not emotionally vested in obtaining the incentive award, he or she will not pursue the goal. Spend some time speaking with the target group and select an award within the framework of the budget that will be important to the group.

#6 Administer the Program

Administration is approximately 20% of the program budget, and a good 50% of the planner's time. The target group needs clear, consistent communication and timely feedback on measurement of their performance.

#7 Celebrate the Success of the Program

The end of the program should be celebrated with the target group and performance measurement by individual or team should be provided at this point. Individuals should then receive their awards.

#8 Analyze Program Success

Did the Incentive Program achieve its objectives? Were the participants motivated to change their behavior? Remember, an Incentive Program provides a short-term gain, and follow-up programs are important. Start planning the next one today.