Significant business returns can grow from a carefully thought-out incentive scheme for employees, says Liz Morrell
With the recession hitting employers’ budgets, and pay and recruitment freezes being implemented across the nation, it might seem contradictory to be offering incentives to staff. Mark Childs, director of consultancy Total Reward Solutions, says: “The sad fact is, employers tend to be rather too reactive when it comes to reward. Reward change programmes can be perceived to be an unwelcome current expense rather than a strategic investment.”
But this may be a blinkered view because incentive schemes can drive positive behaviour in a tough environment. Francis Goss, head of communications, operations and reward services at Grass Roots, says: “People are being more cautious about how they invest in incentive schemes, but to cut incentive budgets altogether has a negative effect on morale, motivation and therefore output.”
If employers are setting up an incentive scheme from scratch, particularly when budgets are stretched, they must ensure it is worthwhile and delivers value to the business. One of the most important factors is to have a clear idea about what they want to achieve, for example, increased sales, better teamwork or better customer service. Mike Morgan, managing director at PeopleValue, says: “The starting point is to work out why they are doing it. What are the pressures on the business? Are they trying to make money or improve morale?”
Many employers will already have some type of informal scheme in place. “Cash bonus incentives, or a pat on the back and a night down the pub paid for by managers have been going on for ever,” adds Morgan.
But although such schemes may work for smaller organisations, bigger employers may need a more formal arrangement across the entire workforce to achieve consistency and financial control. “If employers cannot touch all points of the business, they need to have a formal strategy in place,” says Morgan. Although a formal strategy requires investment from employers, the return from it can be plentiful. “A well-motivated workforce will increase stakeholder value by as much as 20%,” says Morgan.
However, the effectiveness of an incentive scheme often depends on what employers offer and when they offer it. For some staff, cash bonuses still work best, but for others, non-cash rewards, such as experience days or vouchers, are more effective. “For most people it is the act of recognition,” says Goss. “There is very little trophy value from money going into a bank account.”
Charles Cotton, reward adviser at the Chartered Institute of Personnel and Development (CIPD), says: “A key issue is trying to make the incentive as relevant as possible to the individual.”
But formal incentive plans will mean little if employers cannot assess how well they are working. They should avoid rushing one in, because its effectiveness can be measured properly only if the strategy was well defined in the first place.
Management and staff buy-in is also essential to such schemes, so an ongoing, engaging communications programme is required. “It needs to capture the imagination of the individual and the team,” says Cotton.
For example, in 2008, Ladbrokes increased staff participation in its Employee Benefits Award-winning Football Frenzy incentive campaign, which focused on the Euro 2008 championships. The scheme rewarded more than 700 staff, compared with 240 the previous year, by engaging them in games and tests relevant to the tournament.
Steve Baker, director of sales and marketing at reward and recognition firm Projectlink Motivation, says incentive schemes must pass a number of tests for the employee. “They have to be able to answer ‘can I do what you are asking me to do and is it worth my while?’”
But it can be a mistake to think an incentive scheme will run itself once it has been implemented. Michael Rose, director of Rewards Consulting, says: “An incentive scheme will not manage itself, but I have seen examples where people have put in incentive schemes then do not do much with them. It does not become part of the vocabulary and they do not use it to change behaviour.” The incentive scheme must also be seen to be fair. “Employers need to ensure the validity of the nomination,” says Goss.
“When they give recognition and incentives, they have to communicate clearly the reasons why people are getting a reward.” One way of achieving this is to randomly audit a scheme to prevent abuse.
The immediacy of rewards is also important. They should be given as soon as possible after the behaviour the scheme seeks to recognise is made, on at least a monthly basis in order to maintain momentum.
Employers must also consider how such awards should take place. “They should try to make awards public because that helps to reinforce the message the scheme works and staff get something out of it,” says Baker. “But it is also sensible to be sensitive to people’s wishes. For example, it could be that some people do not like crowds.”
Just as employers should not think incentive schemes will run themselves, they must also be aware they may require change. “Employers have got to keep innovating, and if a programme gets tired, review it and relaunch it,” says Goss.
Baker adds: “What [employers] are trying to do with reward schemes is to change behaviour. It should be a flexible scheme, so once behaviour has become learnt, they do not need to reward it any more.”
An effective scheme will demonstrate a return on investment, although it may not be as obvious as driving sales, for example. “In some programmes, it is very easy to measure because it is linked to sales, but where it is not so clear, look at the value of investment,” says Goss. “Look at benefits such as employee satisfaction. If [employers] break down the outputs of the scheme, out of that will drop tangible financial benefits, such as increased engagement, which leads to less staff turnover and lower recruitment costs.”
Financiers should think of it as cost-effective marketing, says Baker. “Employers pay only if it is successful. Most marketing they pay for whether it is effective or not.” If employers offer rewards correctly, the impact on their business will be positive.
Typical objectives for an incentive scheme
- Increase sales overall
- Increase sales of specific products
- Increase sales to specific clients
- Increase sales within specific areas or regions
- Increase sales of additional or support services
- Introduce sales of new products
- Improve client retention
- Improve repeat orders
- Raise the level of average sales (quality)
- Reduce old stock
- Respond to competitor activity
- Improve call rates or activity
- Recruit new salespeople
- Reduce absenteeism
- Reduce costs and waste
- Promote teamwork
- Improve safety
- Improve time-keeping
- Improve process productivity
- Check on training effectiveness
- Improve staff retention
- Improve budgetary control
- Generate leads or referrals
- Recruit new staff
- Collect new ideas, for example, from staff suggestion schemes
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