Companies aim to motivate their staff for reasons that are as varied as the incentive choices available. Whether it is to increase sales, boost productivity, reduce absenteeism, cut costs or encourage them to think more creatively about their role within the business, most companies face the problem of how to get more from their employees.
Probably the most common incentive is money, but one drawback to rewarding staff this way is that all bonuses – one-offs, profit or performance-related – are subject to PAYE. In addition, the tax-free ceiling on profit-related pay dropped this April from £2,000 to £1,000, and will disappear altogether with next year’s Budget.
National Insurance contributions also increased in April from ten to 12.2 per cent, although this will be reduced in next year’s budget to 10.7 per cent, to compensate for the introduction of NI contributions on all benefits in kind.
So not only does it cost a company more to reward with cash, but the individual receives less of the reward. Not only that, studies undertaken on the relationship between executive performance-related pay and overall corporate performance show the results to be random and that, when customer demand for the product or service is low, cash incentives can even be demotivating.
In addition, John Fisher, who runs The Motivation Consultancy, quotes Victor Vroom’s 1964 study “Work and Motivation”, which also undermines the effectiveness of cash incentives. The research discovered that once a specific comfort level has been reached, offering more money in return for improved performance actually impairs performance.
Although cash incentives clearly have a role to play, if staff have already reached a “comfort level”, they could prove an expensive and possibly inefficient way of achieving the goals.
Other incentives include increased pension contributions, private healthcare insurance or provision of childcare. These should help a company recruit and retain valued employees. Costs will be either wholly or in part tax-exempt, so it needn’t be prohibitively expensive and will help give the company a forward-thinking and progressive image.
Unfortunately pensions still suffer from an image problem. Depending on the age, profile and education of the employee, a pension is often not perceived as an attractive benefit.
A company can provide help with childcare in many ways, for example, by making cash contributions; providing childcare vouchers (which are still exempt from NI contributions); buying nursery places; or by getting involved with the childcare provision. This last option, however, is fraught with rules and regulations.
Holiday time is the most popular incentive after cash. It needn’t cost the company much, particularly if awarding extra holiday time does not involve bringing in temporary staff to cover. And anecdotal research indicates that more holiday time can reduce absenteeism, and that staff tend to work more conscientiously the week before going on leave, so fears of shortfalls in productivity are often unfounded.
Another option is approaching one of the many incentive and motivation agencies. One of the factors that tempt companies down the road of a fully-fledged motivation campaign is that it can be self-funding and, depending on targets, substantially increase profits.
But the programme doesn’t need to focus on increasing sales only. The Motivation Consultancy’s Fisher cites as an example Autoglass, the car window replacement company, which embarked on a performance improvement programme for all its 2,000 UK staff in 1992.
An analysis of job type and historical performance patterns was undertaken on behalf of Autoglass, before categorising staff into key areas. Each job was further analysed to identify areas of performance improvement, customer perception of service, distribution errors, clerical errors and how they were solved. Historical standards were then set for each task and the improvements were measured. As a reward for individual performance, retail vouchers were offered.
The results were significant. The number of abandoned customer calls fell from 3.5 to one per cent; the average number of clerical errors in customer documentation fell from 20 to five per cent; customer complaints fell from 12 to 7.5 per cent; and the Customer Opinion Index rose significantly.
Fisher says: “The programme enabled Autoglass to move from a customer-reactive to a customer service-focused organisation. As a result, there was a significant positive increase in the perception of Autoglass by consumers.”
An incentive option also adopted by Autoglass was rewarding staff with merchandise.
Ffwd Precision Marketing managing director James Davies says: “High street vouchers are popular as they allow staff to choose their own reward, although selecting the most appropriate voucher is vital. Perceptions and associations of various vouchers can be very different. For example, House of Fraser has a more exciting and contemporary image than the reliable but sometimes dowdy Marks & Spencer.”
Dr Tamsin Addison, research pyschologist with Ffwd, says: “For voucher incentives to satisfy both those with high and low achievement motivation, they need to be © administered with thought. The goals set should be realistic, but not easy. Smaller but frequent goals are more encouraging.
“The measurement of performance should also be well-defined, allowing both the employer and employee to see how much progress is being made. Extrinsic motivators such as vouchers are more successful if tied in with a task and are appropriate both to the size of the achievement and the individual,” she says
Capital Incentives managing director Graham Povey believes in schemes that are designed to be attainable to all and not just the top performers. To this end, he has devised the Incentive Award Card, which can be used in any of the 14 million outlets that accept Visa.
He says: “One pattern that we have noticed among long-term motivation scheme customers is that the choice and flexibility must keep expanding. For instance, companies which start by offering a single retail voucher may later need to offer a more versatile reward, such as Capital Bonds, which can be used at over 30,000 outlets.”
But changes to NI contributions in the last Budget have affected the cost of using non-cash vouchers as rewards. Since April, all vouchers bought by employers and given to staff will be charged both employers’ and employees’ NI.
Michael Wigmore, finance director of The Travel Organisation and chairman of the Incentive Travel & Meetings Association (ITMA), says: “Non-cash vouchers are now subject to NI, payable by both employer and employee and we expect benefits in kind to be subject to employers’ NI in April 2000. How far the definitions go is open to question. It may or may not encompass incentive travel or merchandise, and the ITMA is cautious about giving information on this, as the whole area is currently uncertain.”
Until the NI situation is clarified, it will not become clear what the impact will be on the use of non-cash vouchers and incentive travel. But what is certain, whether or not costs are increased, is that the effectiveness of a successful incentive travel programme is unlikely to be reduced.
Capital Incentive’s Povey says: “Travel is, overall, perhaps the most powerful motivator. However, too often the glamorous main prize is only for the top few.”
This is the danger of running the type of programme where the high-fliers win all the prizes. Unless the aim is to increase the sales, for instance, of the high-fliers, you may need help in operating a programme that divides staff into bands, to ensure that as many employees as possible are motivated by the programme.
Perception is everything, and the destination must ensure a “wow” reaction from the targeted staff. An ongoing campaign of teasers and mailshots is very important to keep the staff – and very often their partners – motivated.
Incentive travel, however, can be costly, and unless it is linked with a carefully planned increase in sales and therefore revenue, it can be excessively so.
An incentive travel programme can also be complex to organise. A programme of this sort needs to be carefully researched – the destination, the hotel, the flights and check-in all have to be planned beforehand.
A successful incentive travel programme is, according to ITMA’s definition: “That discipline of sales and marketing management which uses promise, fulfilment and memory of an exceptional travel-related experience to motivate participating individuals to attain exceptional levels of achievement in their places of work or education.”
And, after all, isn’t that what everyone is trying to achieve for their business?