It’s time to take the incentive initiative

by 15 Sep 2009

Employee incentive programs can play a big role in boosting productivity and employee engagement. HR Leader details the elements of successful incentive programs and why HR plays an important role in them

Organisations around the world have tightened their belts as a result of the global economic downturn, cutting operating costs, reining in staff expenses, reducing headcount and curtailing payroll costs through flexible working options. While such steps no doubt helped ensure the survival of some companies, a greater focus on productivity through people would have also greatly assisted executives struggling to hit their numbers, according to a recent US report.

Conducted by the Performance Improvement Council (PIC) – a strategic industry group within the Incentive Marketing Association – the report found that business leaders can maximise their investment in employees by cultivating a consistent culture of employee recognition that reminds employees on a continuing basis that they are valued, despite the turmoil that may be going on in the business.

“Nearly every organisation today is re-examining every aspect of its business, debating every cost and looking for even more ways to trim costs while still hoping to find effective ways to exploit competitive advantage,“ says Mike Ryan, PIC President.

“People are clearly that competitive advantage; the challenge lies in finding cost-effective ways to unleash human innovation, promote the right behaviours and keep the right people performing to the optimum level despite the economic chaos.”

Business benefits

David Parsons, vice-president of the Incentive Marketing Association Australia (IMAA), says acquiring new customers, retaining them and making them more profitable is the challenge for all businesses. “If you think about it, everyone in an organisation plays a key role in the success or failure of these three business drivers,” he says.

“Let’s start with the basic premise that every person in an organisation contributes to its success. If this principle is true, then let’s also consider the notion that all employees con tribute differently – let’s call this employee performance.”

The level at which employees perform is fundamentally influenced by drivers such as technical knowledge, experience, motivation and engagement, and Parsons says good incentive programs are designed in such ways to support and by definition, incentivise, these key drivers.

In practice, good incentive programs are tied directly to behaviours that drive a superior level of performance, he says. “The ultimate benefit of a good program is to incorporate program strategies that drive positive employee behaviours, reward and recognise employees for the effort, and measure the outcomes – ensuring every dollar spent on rewards and management results in an incremental benefit or return to the business.”

There are a number of associated benefits to having an incentive program that is aligned with business strategy. Grant Arnott, former publisher of Marketing magazine and a board member of the IMAA, says that, as businesses emerge from the global economic downturn, the talent shortage will become more acute and competition for good people will increase.

“As it becomes more competitive to recruit the right people, it’s a business imperative to incentivise and grow those people in the organisation,” he says.

“Gone are the days where it was the norm to show people the door frequently. Companies now need to invest in rewarding and recognising their employees in order to grow the business. You can’t count on the fact that there will be a ready-made candidate to take their place – and the cost of recruitment is enormous so it’s much wiser to invest in keeping your staff loyal.”

A strong and effective incentives program can also support employer branding, according to Arnott. This is equally important for current employees, who reflect on the stature of their company and how it values staff, as well as potential employees. “The better the employer brand, the better the company is perceived as a place to work. A lot of companies these days are finding a lot of value in that,” he says.

Elements of a good program

There are four main elements that should be considered in development of any employee incentive program, according to Parsons: program design; communications; rewards; and measurement.

Program design is vital in ensuring the right employees and behaviours are targeted, complemented by the right earning and redeeming structure and amounts. At this stage, he says it is also important to consider things that can enhance a program and/or offset costs such as tiering and the use of partners.

Parsons says it’s vital that the right communications plan is developed to support the program and that fundamental direct marketing principles should be applied to all communications activities. “It’s also vital to ensure that we don’t set and forget,” he says.

“Having an incentive website up and running doesn’t automatically create excitement and engagement with the program. By identifying the right moment to create a dialogue with an employee and executing it effectively, we see real improvements in program effectiveness and results.”

When it comes to rewards, he says it’s important to consider a program from an employee perspective – the “what’s in it for me” factor. “Let’s start with a view that cash is rational and a trophy is emotional, then we put these two items at either end of a spectrum and fill the gap with items such as gift cards, travel, experiences and merchandise – we end up with a range of options that are more or less rational or emotive than the other,” he says.

“A good rewards range has the right mix of emotive and rational rewards, and by giving your employees choice, you’ll achieve the best outcomes when it comes to leveraging this range to drive and change behaviour.”

The final element in an employee incentive program is measurement, and Parsons says that if you can’t measure something you shouldn’t be doing it. “This principle applies to the money you spend on rewards and incentives through to communication effectiveness and engagement with the program. All dimensions of a program are measurable and should be considered as part of any new program,” he says.

Common incentive pitfalls

As with most HR or business initiatives, there are pitfalls associated with employee incentive programs. Arnott says one of the fundamental mistakes is not aligning a program with overall business objectives. “A program should not exist in isolation. It needs to be engaging so that employees can engage with the program and the business – they need to want to participate and be incentivised to contribute to busi ness goals,” he says.

Managing expectations is also a common issue with such programs, and Arnott says it’s important to make sure they will work in a scalable way across an entire organisation. “In other words, you don’t want disparity between different divi sions so that particular employees are rewarded over others.”

Another common pitfall is losing control of budgets, according to Parsons. “It’s easy to give away lots of points, however if you’re not budgeting for it, then the conversation with the finance team at the end of the month can get uncom fortable!” he says.

No accountability or ROI reporting is another common mistake, and Parsons says good programs provide the infor mation that HR leaders need to clearly articulate the value of the spend on the program to finance and management.

“When the program is designed well, it will work. When it is working it will be producing measurable returns to the business. When HR can demonstrate the ROI that an employee incentive program is delivering, it makes life much easier in developing ongoing commitment to recognising and rewarding employee performance with incentives,” he says.

The Incentive Show

The Incentive Show is the largest exhibition and learning event in Australia devoted to helping organisations grow sales, improve marketing effectiveness and build customer loyalty, and both Parsons and Arnott recommend attending to learn more about the process of maximising employee incentive programs.

"In the last one to two years there has been an explosion in the amount of incentive programs being launched, and a lot of this comes down to the easy access to off-the-shelf online products that make it easy to set up a program," Arnott says.

"It's important to find the right technology solution that will make it easy for employees and channel partners to participate, redeem rewards, and so on, and the upcoming Incentive Show will have a lot on display for anyone interested in learning more."

Organised by Wakamo Business Media and endorsed by the Incentive Marketing Association Australia, the Incentive Show will help attendees access and understand the latest trends in the fast-moving incentive and motivation markets, hear case studies from top practitioners and network with the industry's leading experts.

The show will be held at the Sydney Convention & Exhibition Centre at Darling Harbour, Sydney on Tuesday 29 September and Wednesday 30 September 2009.

For more information visit www.incentiveshow.com.au.