The Problem With Incentives: Not Rewarding What Employees Control

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I’ve seen (and written about) countless recognition gone wrong schemes, most usually those that are really incentive sand not recognition. (For the difference between incentives and recognition, I recommend this post.)

These incentives schemes often run off the rails because of the law of unintended consequences – you’re hoping for one outcome, but actively encouraging another.

Sales incentives typically fall in their own protected category, however. Sales commission plans are de rigueur and can be appropriate when applied correctly. Then there are schemes doomed to fail, such as incentive caps.

“Incentives signal desires”

Take this example from Jeff Haden in Inc. magazine:

Incentive caps eventually de-incentivize outstanding performers – or at least limit their overall performance. Say your sales people are on a 1 percent commission rate for sales up to $500,000 per month. Sales over $500,000 don’t earn a commission. Next month they start over… So what happens? An outstanding sales person makes sure she goes ever so slightly over $500,000 each month. She could sell more – but what’s the point? If she hits her cap on the 25th, she might decide to hold off trying to close the deal with a hot prospect until the first of the month. Or she might just relax a little and prepare to hit the ground running on the first.

Incentives signal desires – so even the best employees soon decide that since you don’t want to pay for sales over $500,000 a month, you clearly do not want sales over $500,000 a month. So they won’t give them to you.”

“Incentives signal desires” – that’s why I always encourage caution with incentives programs. Be sure you’re communicating your desires accurately.

Rewarding behavior employees control

What’s a better approach? Jeff offers exactly the right advice in the same article:

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The key is to reward specific behaviors employees control – not the results of factors employees can’t control… In most cases the better approach is to reward specific behavior, not general results. If you feel increased productivity is a worthwhile goal, reward production employees for faster job changeovers or increased up time–reward them for hitting productivity targets. Or for performing specific actions that generate cost savings.”

Motivating employees to repeat desired behaviors requires they know what behaviors you want them to repeat. The most effective way to communicate to an employee desired behaviors is to recognize them frequently, specifically and – critically – in a timely way whenever they demonstrate those behaviors.

Where does your company focus emphasis? On incentives or recognition of behaviors?

You can find more from Derek Irvine on his Recognize This! blog.

Derek Irvine is one of the world’s foremost experts on employee recognition and engagement, helping business leaders set a higher vision and ambition for their company culture. As the Vice President of Client Strategy and Consulting at Globoforce, Derek helps clients — including some of world’s most admired companies such as Proctor and Gamble, Intuit, KPMG, and Thomson Reuters — leverage recognition strategies and best practices to better manage company culture, elevate employee engagement, increase retention, and improve the bottom line. He's also a renowned speaker and co-author of Winning with a Culture of Recognition. Contact him at irvine@globoforce.com.

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