Column - January 2009

Business Strategies
Planning Effective Incentive Programs
By Jim Ruszala and Karen Renk

 

In the midst of today’s financial woes on both Wall Street and Main Street, companies may be inclined to slash their marketing and advertising budgets. Savvy organizations, however, should feel differently when it comes to eliminating programs that are designed to award employees for their

Jim Ruszala is director of marketing for Maritz Travel Company and executive vice president of the Incentive Marketing Association’s (IMA) Incentive Travel Council. E-mail jim.ruszala@maritz.com.

performance, understanding that this may have a long-term negative impact on their bottom line. Research conducted by the Forum for People Performance Management and Measurement at Northwestern University shows a direct link between engaged and productive employees and profitability. Additional research conducted by Alex Edmans, The Wharton School, University of Pennsylvania, found that companies that continue to invest in recognition and rewards programs, regardless of economic conditions, tend to outperform their competitors.

When the economic turnaround begins, employees will once again have more choices about where they will work. Lost talent and reduced productivity are risks to future sales and profits. Companies must protect the 85 percent of their assets that are tied up in the human knowledge and skills of their work force. One way to protect these assets is to resist eliminating long-term employee incentive programs in favor of what appears to be a short-term gain.

Of course, in good times or bad, you must make sure that your incentive programs are effective in realizing your organization’s corporate objectives and financial goals. This is always best achieved by integrating three key components into your incentive planning process:

1. Purpose And Objective

The foundation of the entire planning process consists of the purpose and objectives associated with the incentive program. It’s here that clear and concise answers need to be provided — particularly when the economy

Karen Renk is executive director of the Incentive Marketing Association (incentivemarketing.org) and a member of the Incentive Federation’s Board of Directors. E-mail karen@incentivemarketing.org.

dictates greater attention to the bottom line — with regard to such key questions as:

• Who will be the targeted participants?
• What are the desired results or outcomes?
• When will the program operate?
• Where will we look to develop, execute and measure the program strategy?
• How will this impact our business performance in fiscal and non-fiscal terms?

When teams are brought together to develop an outline and strategy for an incentive program before the purpose and objectives have been defined, a series of unfortunate events can occur. Upfront, this can cause significant frustration from stakeholders responsible for the development and approval of the incentive program. At other times, the impact can be masked until the program concludes and you are in the performance evaluation phase looking at lackluster results.

It’s critically important that the primary owners of the program reach a consensus on identified objectives — of course, quite possibly a greater challenge during tough times. This can involve the meeting planning department, sales, marketing, human resources, procurement and other areas of the organization. Establishing mutually agreed upon objectives avoids mixed expectations that can lead to conflicting incentive program goals and widely varying perceptions regarding the performance results.

2. Voice Of The Participant

Traditionally, program strategy involved deep discussions with stakeholders and incentive development teams, a review of past program performance and a dash of good old gut instinct and intuition. While these programs may have had post evaluation measurements in place, they were

Companies that continue to invest in recognition and rewards programs, regardless of economic conditions, tend to outperform their competitors.

primarily reflective and provided only a level of satisfaction for what was experienced. They do not disclose what participants would have preferred or what would have been more motivating to them. This approach no longer ensures you are effectively motivating today’s participants.

Today’s employees, channel partners and ultimate customers are more diverse than ever. Don’t get sidetracked with thinking about this as merely a demographically based issue. There are extended considerations to address, such as family structure, generational differences and individual participant perceptions as to what they view as motivationally appealing. And, the challenges of today’s economy may be causing these basic considerations to shift. This increase in diversity and changing needs requires different approaches that impact the entire program from reward type, communication planning, earning thresholds, and so forth.

In order to truly guide the planning process to achieve high-performing outcomes, you need to invite participants into the decision-making process during program design. This provides forward-looking insights behind what they view as most motivating. As a result, your program becomes much more relevant and motivationally appealing which, in turn, helps drive better incentive program outcomes.

3. Performance Metrics And Measurement

Performance metrics need to relate directly back to the objectives of your program, represented in both quantitative as well as qualitative reporting and analysis. Performance measurement on agreed upon metrics should be conducted before, during and after program execution — not just at the conclusion. And perhaps even modified based on the movement (either way) of current economic pressures.

Before: For the same reasoning it was of high importance to have mutually agreed upon objectives, the same rationale exists for defined metrics and measurements. In addition, you’ll want to establish a baseline in order to identify the incremental values achieved. In other words, what results would you have expected without an incentive program in place vs. what did you achieve?

During: Establishing thresholds as to where you expect to be throughout the life cycle of the incentive program provides milestone indicators of performance at a point in time. If you’re coming up short of expectations at a given point, you can trigger contingency efforts to ensure you get back on track.

After: A solid evaluation needs to cover the qualitative and quantitative as well as the tangibles (i.e., immediate sales up-tick or dollars and cents) and intangibles (i.e., improved employee satisfaction and retention). When evaluating performance, also take into account outside influencers, such as competitive programs and new business developments.

Depending upon the program type, targeted audience and other design elements of the incentive program, there is a benefit of ongoing tracking to determine what the short-, mid- and long-term impact was on performance areas. Quality performance evaluations not only help you understand the results of a given program, they also help you repeat success, enhance experiences and avoid investments in areas that generate poor returns.

It’s safe to say that the idea of a standardized, universal incentive planning process does not exist. This is particularly true when facing the challenges of a down economy and looking ahead to what the realities may be once a turnaround begins. Diversity is needed for a variety of reasons. But to reach higher levels of effectiveness, the three areas discussed are the one commonality that should be found within the planning process — overall, successful incentive outcomes depend on them.    C&IT