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Wednesday, January 6, 2010

Four Principles Behind a Successful Incentive Program

An incentive program must produce a positive return on investment, otherwise it’s not worthwhile. My benchmark is an improvement of at least 20% in KPI’s. The program cost should be around two hours worth of labor cost per employee per month. For example, if paying $12 per hour, plan to spend $18 to $30 per month on incentives and program administration. This results in an excellent ROI.

I’ve observed four tenets beneath the most successful programs.

  1. Reward the daily homework and the final grade takes care of itself. Take large activities and break them into their smallest components and reward them as they occur. If improved attendance is a goal, provide a daily reward in addition to a “five days in a row” award. This will achieve significantly greater overall improvement than weekly, monthly or quarterly attendance rewards. Technologically this may be challenging however “continuous positive reinforcement” is one of the best and most cost efficient methods of behavior shaping

  2. Make your office a fun place. Whether playing spin-the-wheel, drawing a ticket from a bowl or other simple and quick games, it’s valuable to inject even more excitement into receiving a reward. All rewards must be positive; the variable is the amount of the prize. The principal of “random intermittent reinforcement” is another very strong element found in successful incentive programs.

  3. Give the reward as soon as possible after the desired event. If an improved conversion or up selling rate is a goal, provide the reward for the activity as soon as possible. Remember that any activity that is rewarded will be repeated.

  4. Choice of the reward is crucial. Having rewards that have no perceived value will not elicit desired behaviors. Allowing the recipient to determine the reward also solves the clairvoyance problem of not knowing what to give. Rather than forcing the employee to select overpriced merchandise or gift cards from specific stores, a Visa or MasterCard debit card allows choice.

One of the hallmarks of failed incentive programs is that they are perceived as “short term” solutions. Incentive programs must be “on going” or KPI’s revert to their prior states. Unfortunately positive behaviors lack momentum to continue far beyond the cut-off point of an incentive program.