Every executive and his dog have thought about incentive schemes that will give the company a performance boost. Incentives schemesÂ are bribes that is given to people for doing things they were already supposed to do. The problem with incentives is that it works only too well. Here is what you need to think about:Â
Is the incentive system simple enough?
Complicated incentive systems look fishy. If you want people to trust the system then you have to make it simple enough so that everyone can understand it. If the people won’t understand what they need to do, it won’t get done anyways. I once interviewed someone for the post of business development manager and her incentive scheme was nothing less than an MLM program.Â
How much is it going to cost to have an incentive program?
Incentive program requires collection and analysis of data which requires resources like people and time. The more complicated the program is, the more difficult and resource consuming the job becomes. We once implemented a program called “the point system” in which every employee earned 1 point for every $25 worth of production.Â
Every employee had aÂ target set of points that they were supposed to accumulate in a given month.Â This target was set based on the average costs of his business unit. The idea was simple, we wanted to focus on revenue per person (PPR) and it seemedÂ logical to provide incentives to person whose PPR is higher than the target. The most important point was that it gave us quantitative data for performance analysis.Â
This program seemed brilliant at the moment, but later the cost of administering the program was so high and it was so counter-productive that we closed it within 4 months of its implementation. It produced 20 pages for each team every month and some 300 sheets in total that had to be verified, analyzed and tracked.Â
Is the goal achievable?
It makes sense to set the goal slightly higher than the normal but, setting it too high is an obvious way to kill all motivation. If I know that the defect-rate is 10%, then it makes sense to provide incentive for reducing it to 5%-7%Â but giving an incentive for 0% defect-rate will only have your employees laughing atÂ your back!Â
Will increased effort lead to increased performance?
Wait forÂ moment to let that question sink in first.Â
If your employees are ineffective because ofÂ your company’s systems and processes then no amount of incentives is going to make them more effective.Â
Incentives, especially in the form of financial reward can be a great motivator and it can get people working really very hard. However, people still got on workÂ with the processes and structures within the organization and if that’s not efficient then raw hard work will not lead to superior performance.Â
People will slog endlessly, only to find at the end that the target has not been achieved. Thus, they will be de-motivated because they have done all they can to achieve a reasonable goal but still the money has eluded them. Running on ice will slow down the best sprinters!Â
What behavior am I encouraging?
Behavior is a result of consequences.Â ThereÂ six elements of projectÂ i.e.Â Scope, Cost, Quality, Risk, Time and Customer Satisfaction. This forms a perfect hexagon in which every element has impact on all others. Pull one and other 5 gets drawn too.Â The problem is that incentives focuses the attention of employees like a laser beam,Â all periphery vision is lost. Thus, giving incentive for “on-time” delivery will mean that people will forget about other five things because to them, it means thatÂ “on-time” deliveryÂ must be most important to management.Â People are smart and they will soon figure out a way to meet the objectives may be at the cost of quality or customer satisfaction.Â
Incentives is not just about throwing in money to get things done, for all you know it may be changing the way your organizations expectations, thought process and behavior forever. Employees will begin to judge the importance of the job by checking whether it has an incentive scheme tied to it or not.Â Things that don’t have incentives will not be considered important.
IMHO paying decent salaries, treating people well andÂ maintainingÂ the rightÂ culture is far more important and useful then crazy incentive schemes.Â