Paul Hebert, my go-to-guy for all things incentive in this world, has a great post up 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 be 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.