The Power of Employee Incentives

One of the many things that I learned from my Uncle Dino is how powerful incentives can be in motivating desired employee behavior by creating “Win/Win” situations for both the employee and the business.

I have since seen firsthand how effective incentive programs can be when employee performance is the focus of the incentive. When a business owner is willing to pay a bonus for specific results, it sends a clear message to your employees that those desired results are important to your business.

During my career, I have developed many incentive programs. Most were extremely successful in achieving the desired results. Unfortunately, much to my chagrin, I have also created a few that simply didn’t work.

Throughout these experiences, I’ve come to recognize that successful employee incentives have the following things in common:

• Understandable. Employees need to understand exactly what is expected of them in order to earn the bonus. A friend in the grocery business told me that he once violated this rule by offering an incentive to his grocery store employees for achieving a certain “return per square foot” (this is a common metric in the grocery store business). My friend was very dejected after a conversation with a longtime checkstand employee revealed that the employee had not paid attention to the incentive because he had no idea what “return per square foot” meant, let alone how he was supposed to influence it!

• Achievable. Performance targets must be seen by employees as achievable. For incentives to motivate, employees must have a realistic expectation of being able to earn them. Otherwise, why bother?

• Measurable. Vague, subjective performance targets (like “employees must improve service”) do not motivate because employees have no clear way to know whether their efforts are paying off or not. Instead, a more objective, effective, and measurable target might be “Increase guest satisfaction survey scores by 10%.” Because the employee can count their progress toward success, the incentive can influence their behavior. For example, in professional baseball, there is no confusion with an incentive clause in a player’s contract which pays a bonus for every home run that player hits!

• Balanced. Performance targets that are focused on productivity or cost reduction need to be counterbalanced with quality standards. Since the fastest way to increase productivity or to cut costs is by sacrificing quality, it is critical to measure product quality and penalize employees for any reduction in quality.

Frequent feedback is also an important factor. A common mistake that is often made (and once by yours truly) is to roll out the incentive program with much hoopla, but subsequently failing to provide the participants with any progress updates until the end of the program.

Without regular updates, employees quickly forget about the incentive, out of sight, out of mind. Unfortunately, that results in a Lose/Lose situation where the desired behavior doesn’t happen and the employees miss out on an opportunity to earn more money. That is why the very best incentive programs have a reporting method that consistently informs employees at frequent intervals (daily or weekly) of how they are doing with the program.

In my experience, incentives that are understandable, achievable, measurable, and balanced motivate most employees to achieve desired results, often beyond what you originally had hoped. In other words, by creating Win/Win situations, you can help your employees recognize (and focus upon) the types of behavior which are most valuable to improving your business!

As my Uncle Dino is fond of saying, “What gets measured and rewarded gets done!”