Paying dividends

Picture the donkey and his carrot; the incentive of food that hangs perpetually just beyond his reach, geeing him on. Looking further back into the image we can see that the carrot is, in fact, hanging by a string from a stick attached to the donkey’s rear end. Silly old ass, says the image, being hoodwinked thus.

People are much more shrewd; be they staff or customers, it takes more than a false promise to keep them motivated – rewards have to be real and attainable to be effective. But when it comes to putting together an effective incentive programme, that’s not the only issue.

Marriott Incentive Awards director of sales and marketing Caroline Pearson believes that the first step is to determine what you want to get done that is not being done. She says: “The more specific your objective, the more chance you have of achieving it. If your objective is fuzzy, too broad, or too complicated, your audience may never play the game. It’s also key to drive performance improvement rather than rewarding employees for simply doing their job.”

Yet Pearson tempers this by saying it is also important to be realistic. “Ensure the programme is appropriate for your employees’ skills. Set goals that fall within the remit of existing job descriptions and don’t ask people to achieve something out of their range.”

Money matters

Then there is the question of budget; no company can afford to invest large amounts on incentives such as cash bonuses, vouchers and holidays, without first calculating the return they will gain. So how can you ensure you invest the right amount?

“It’s all about considering your objectives and making sure the budget is created from incremental profit,” says Capital Incentives & Motivation managing director Graham Povey. “Incentive programmes should aim to be self-funding, especially in sales. And providing this is the case, there should be no need to cap budgets when a member of the force goes the extra mile. The last thing you want to do is stop people earning rewards when they reach a certain level – it’s extremely demotivating.”

Make the average a priority

He also believes that top achievers are often extremely self motivated already, and the bottom ten per cent will be virtually impossible to motivate regardless of any incentive. “The main bulk of expenditure and communication is aimed at the middle 80 per cent. These people are not going to leave through poor performance and, whereas the top ten per cent will be chiefly motivated by recognition, the budget needs to be set for those people in the centre. You need to encourage them to achieve targets they might otherwise miss.”

So is there a general rule of thumb when it comes to planning expenditure? “A reward needs to be at least 20 per cent of an annual salary for it to be motivational to a salesforce. Then, once you’ve set a budget, you have to take out a cost for promotion and administration – somewhere between ten and 20 per cent is the norm. Plus, if there is no internal resource, you have to allow for outsourcing. I’d also advise taking tax and National Insurance from what’s left – even non-cash awards are more rewarding when the tax is paid. That means taking a further 25 to 30 per cent, but it means the full reward is enjoyed.”

Virgin Incentives sales and marketing director Andrew Johnson underlines the importance of investing in communication. No matter how appealing the rewards are, if no one knows about the activity, if the participants don’t understand how it works, or the promotional materials are of poor quality or are non-existent, they won’t bring maximum benefit to the campaign.

He says it is vital to think through the rewards offered: “A weekend in New York should include transfers and spending money, for instance. Recently we persuaded a client to spend a similar budget on a five-star weekend in the UK, which meant they were able to include an allowance for drinks and food so the recipient truly had nothing to pay for. The last thing you want is your incentive becoming a burden.”

Argos Business Solutions managing director John Davis says one way of working out an optimum budget is to calculate the value the scheme will bring to the company if you get it right. If a retailer is looking to generate &£1m in extra revenue by motivating customers to buy more, he advocates investing something in the region of &£200,000 to make the scheme work well. Good support is also key.

Hey big spender…

“There is no point spending a fortune on great rewards if you cannot administrate the scheme properly. A system like Argos Business Solutions’ online reward management tool, The Hive, not only helps you gain an overall view of the scheme you are running, it also provides the means to manage it centrally. It acts as an interface for participants to access the reward scheme and accumulates data so you can check how your scheme links to sales figures, absenteeism and so forth,” says Davis.

Nevertheless, he points out there is always the possibility that budgets may be better spent elsewhere. “By taking a step back and looking at what you want to achieve from a scheme, you may find it’s not the best option,” he says. “If the product, price and promotion aren’t right, a reward scheme will not achieve the fundamentals that help a company to grab market share.”

And the winners are…

So what about measuring the effectiveness of a programme? One might assume this is done once the scheme has run its course, but Povey insists it’s important to revisit targets regularly throughout any activity. “It’s rare to let a scheme run for 12 months these days. Both targets and rewards should be analysed every quarter.”

He explains that if targets are too low, you end up with people overachieving, which can prove expensive. Equally, it’s important to gauge if targets have been set too high. Once they have been set more appropriately, it may well be necessary to remotivate those staff who are underachieving.

This is all very well for sales incentives, but how does a company assess whether less tangible factors such as motivation, morale, loyalty or customer service have improved? “Reward and recognition schemes tend to be less easy to quantify” says Povey, “although it is possible to measure elements such as staff turnover and customer retention rates over the longer term.”

For those keen on getting maximum return on their investment in a reward programme, it is important to make sure the scheme works efficiently, rather than merely providing ample rewards. The thought really can count as much as the gift. As Povey explains: “Often the act of recognition means as much as the reward itself. Rewards can be as little as &£25, which is hardly enough to change anyone’s life. But what’s important is senior managers highlighting the top performers in front of other people – making it public.”

An instant success?

Immediacy is also key, as with Severn Trent Utilities’ programme “Saying Thanks”. Line managers don’t have to wait until the end of the quarter to reward staff for a job well done; they do it instantly. It’s easy to understand why this type of reward is more motivating – being given a small pat on the back weeks after the event hardly says the company really appreciates an individual’s hard work.

It is also essential to establish a set of critical success factorsagainst which to benchmark the success of a scheme at the outset. “Without these criteria, it’s impossible to measure effectiveness accurately,” says Argos’s Davis. “When motivating the salesforce, it may be the number of calls and success rates that are measured; in staff motivation schemes, drops in absenteeism or increased productivity; and in customer motivation schemes it may be basket size or increased number of visits.”

Highs and lows

High Street Gift Voucher sales director Denise Porter has been working on a scheme for photo-processing companies Klik and Max Spielman. The scheme is conventional – staff are rewarded with high street gift vouchers on a monthly basis for selling certain products and improving sales in store. But it could be argued that it is this simplicity that is largely responsible for the scheme’s success.

“With one gift voucher and one supplier we remove any aggravation from award redemption, so our clients can use their budgets in the most effective way,” Porter says. “It also makes it easy to communicate, and when you’ve a large percentage of part-time staff this is very important. There’s a newsletter, monthly public presentations of rewards by branch managers, and if someone truly excels, the chief executive will send a personal letter from head office.”

The scheme has succeeded not just in boosting morale, but in increasing profits, as staff have been motivated to process more photographs in store, rather than choose the more expensive option of sending them to a lab.

This illustrates the win-win potential of investing in an incentive scheme: your people feel rewarded while your business increases its profitability. But as with any investment, you have to speculate to accumulate, and results can never be guaranteed.