Should Incentives Be Used If You Aren't Ready to Fire Someone?

Paul Hebert, my go-to-guy for all things incentive in this world, has a great post at Incentive Intelligence about the types of things for which you should provide incentives. 

From PH's post:

"Incentives have two poles - rewards and punishment.  I can move your behavior based on providing an incentive or I can punish you for non-performance.   If you don't do what I want - there will be negative consequences.

I was wondering if this idea of opposing sides to incentives could be used to test the validity of an incentive and reward structure?  What if we re-frame the rules using the negative - and see if it still makes sense? 

If you wouldn't punish someone for missing a goal then maybe you shouldn't reward the same goal."

Think through that for a moment, and you'll find the exercise is more difficult than you think.  For example, Paul uses the concept of making a sale in his post as a basis for incentives.  We provide incentives for sales all the time.  Paul uses the test logic "Make a sale today (use this week/month depending on the cycle times for your product) or you're fired".

Would you make that blanket statement?  Probably not.  To Paul's point, there are too many things involved to let someone go, based on non-performance over a short period of time.

But that brings me pretty quickly to the related topic of performance management.  If you read this site, you know I am pretty strong-headed about doing performance management off a 3-point scale (Exceeds, Meets or Does Not Meet) rather than a 5 or 7-point scale.

The reason?  Simplicity, my friends.  I can bring an expert like Paul into the organization to assist me with structuring incentives.  But, the best way I can think of to make sure I get "bang for my buck" is to tie the incentive, even if it is short-term, to the "Exceeds" level of performance.  In that fashion, I'm using a short term incentive to reinforce how high the bar is to an "Exceeds" performer.

That feeds the culture of performance, which is the goal of upstream incentive programs.  The danger is that you set the bar low enough that "Meets" performers get the carrot.  It's cool to be a "Meets", but incentives should be there for those who exceed and deliver extra.

The more people who get that, the better the performance of your organization.

Comments

[Fran Melmed]

Great post and blog. I regularly talk with my kids--and clients--about unintended consequences, and there are *so* many examples of them in our day-to-day living. Your and Paul's thoughts on salesforce incentives are a perfect example.

[Jenna Schofield]

I like the simplicity of your scale, and I think incentives can set the framework for the actions you would take as an HR professional.

Paul Herbert mentions in a comment about thinking of incentives as a "way to break the inertia of doing nothing." If we see it that way, you can think of what behaviors (or lack thereof) for which you might fire someone. There is the line between your "Doesn't Meet" and "Meets." If keeping their job is not enough incentive for folks to meet your minimum standards for performance or compliance in some way, it is not likely that incentives are going to drive them all the way into the "Exceeds" group. You can choose not to waste additional time or money on things like training programs and determine at what point it is more cost effective to cut the cord.

Then, you can use incentives to help drive your "Meets" folks to the "Exceeds" level. You know the folks in the "Meets" group at least have what it takes to avoid losing their job--they may just need a little extra motivation or training to improve to the next level...and then these types of incentives are not wasted on the "Doesn't Meet" group that simply has too far to go.

Just a thought. Theory doesn't always work in execution though! :-)

[Lisa Rosendahl]

I LOVE the meets vs exceed and what-to-reward-when conversations and still keep your performance review posts from a few years back in easy reach to help me to frame discussions.

[DanFlan]

I am a huge fan of the three point scale. I pushed hard for this in our internal implementation of performance reviews, but we went the other direction - a 5 point scale with .5 increments (which is really a 9 point scale). I think only a three point scale makes average acceptable. Otherwise, there is a natural instinct to inflate ratings.

I also like the idea of incentives varying widely. I think when you tell someone they are an eligible for a 10% bonus, they tend to accept that bonus as an extension of their salary so long as they don't screw up. So in some sense, giving them a 5% bonus for average performance is a bit of a punishment. But really, 0% should be as acceptable as 20%. There just needs to be clear criteria that explain why you merited each one.

[Derek Irvine, Globoforce]

Kris, you've just argued effectively why incentives - when used as the primary tool for employee recognition - fail dramatically. Recognition for effort works.

What's the difference?

The answer lies in understanding the fundamental difference between incentives and recognition. I liked very much a client's definition of incentive as "push the button, get the pellet." You are told in advance "if you do this, you get that." You are pre-directing effort in a way that eliminates the need for creativity and can actually discourage innovation and the desire to give additional discretionary effort - often with unintended consequences. Incentives are all about the stuff – the reward.

Recognition, however, is a more intensive effort that delivers the positive results companies are looking for when they think about these programs. Recognition is based on fostering an environment in which employees WANT to perform, then letting managers and even colleagues acknowledge exceptional effort and praise deserving employees for it. It is more intensive because it requires people to actually notice and then demonstrably appreciate the efforts of those around them. But that effort is well worth the result -- a true culture of appreciation.

The confusion arises because recognition can include a reward, but it is not about the "stuff." Recognition is about encouraging, acknowledging and appreciating desired BEHAVIORS. This is a critical difference to understand by any company desiring to influence employee behavior without stifling innovation, action and creativity.