Improving performance in uncertain times using non-cash incentives

Change creates an emotional response

Even in the best of times, companies experience different competitive and environmental factors that can lead to organizational change and thus employee uncertainty. In hard economic times, those changes occur at a much greater pace and employee uncertainty can be even greater.   Employee uncertainty creates a number of challenges for organizations as employees often feel anxious, disillusionment, disappointment, confusion, and even anger over their lack of control in an unknown situation.  This often leads to decreased employee motivation, focus and subsequent decreases in productivity and performance.

Companies can employ a number of different mechanisms to help recharge employee motivation in changing environments.  One key mechanism is the use of targeted incentives to help engage employees and focus them on improving productivity.  Because incentives can be structured in a number of different ways and use a variety of reward options, it is important to understand what aspects of incentives will drive the greatest return given the uncertainty and emotional response that is felt by employees during these organizational shifts.

Understanding the psychological response:

The emotional response of individuals to potential negative changes is theorized to go through a process similar to grief.  The Kubler-Ross Reaction to Change[i] cycle shows how employees typically flow through recognized stages when faced with change.

Kubler Ross Change

Initial denial is followed by resistance, then a period of self-doubt and worry, followed by a time of letting go, with acceptance of the change and exploration of options, and finally moving to new commitment and focus.  This is an emotionally charged process that requires time to respond to change.

Organizations need to be able to manage this process and move people through these stages as quickly as possible.  The engagement of the emotional elements of the brain is vital to being able to achieve this. During the high stress, denial and resistance stages, our brains do not process rational arguments as easily or readily as they usually do.  In order to gain a foothold in this emotional cauldron, incentives need to have an emotional hook.  Non-cash incentives achieve this hook through a variety of behavioral economic principles.  First, they provide hedonic luxury escape which is about being able to remove yourself from the current state and imagine yourself with a luxury item or good[ii].  Second, they activate different sectors of the brain associated with visualization (i.e., right hemisphere brain functions) versus the more rational sectors associated with transactions (i.e., money and left hemisphere brain functions)[iii].  Third, non-cash elements do not push employees into a calculative modality in which they equate effort with monetary amounts.  In stressful situations, this calculation is short-changed and often interpreted as “they are trying to bribe me.”  Non-cash awards are evaluated as a separate, non-financial component that is viewed in isolation and not in factors that are associated with other compensation factors.[iv]

Examples:

Many organizations have utilized non-cash incentives in periods of uncertainty and change.  The following are just a few examples of these incentives and the results that they generated.

Y2K Angst

A technology firm out of Des Moines, Iowa was experiencing high levels of turnover and angst with its software programmers because of the uncertainty surrounding Y2K and how their jobs were going to be negatively impacted.   A non-cash incentive program aimed at achieving specific Y2K milestones was implemented across the organization.  AwardperQs (a non-cash point system) were awarded to individuals and teams that achieved specific milestones.   This program provided clear focus and motivation for the software programmers and achieved in excess of 90% of employees engaged/ participating/hitting one or more milestones.

Sales Force Integration

A leading medical technology company was moving from a product-centered sales philosophy to a customer-centric team approach.  This involved a realignment and adjustment to the sales force that created significant uncertainty in the field about their jobs and roles.  A six-month incentive program was developed that rewarded people for sales that required integration of two or more product groups.  A fixed award pool created a sense of urgency and engagement in the incentive.  The client realized a return of more than 300:1 on this program.

Realignment

A pharmaceutical firm was going through a major realignment of territories and product allocation due to a large product soon to come off of patent.  Many sales representatives had new managers, new doctors and new products that they needed to work with.  A short-term team based award was put in place that offered teams the chance to earn from selected merchandise if they were in the top 20% of districts across the nation.  Quota achievement across the division came in above the stretch goal, even with the distraction of realignment.

Other Factors

Obviously there are other factors that influence how quickly organizations move their employees through angst to engagement in situations that are stressful or uncertain.  While this paper does not expand upon those, two key factors that relate to incentives include:

  • Incentives should be short-term to allow for readily available goal progress particularly when dealing with uncertainty.  By providing short-term incentives and tracking to that, individuals will achieve a sense of progression towards goal which increases the perception of certainty in the program.
  • Communication is key.  Incentives cannot be viewed of as a bribe or they will be summarily dismissed.  The tone and narrative of the communication needs to be set up to have the most positive impact and create a separate interaction with the incentives that sets it as different from the cause of the uncertainty.

 


[i] Kübler-Ross, E. (2005) On Grief and Grieving: Finding the Meaning of Grief Through the Five Stages of Loss, Simon & Schuster Ltd.

[ii] Kivetz, R. (2010) Rewards Hierarchy and Hedonic Luxury, presentation at BIW Forum

[iii] Jeffrey, S., (2006) Cash or Hawaii: The benefits of tangible non-monetary incentives, dissertation

[iv] Jeffrey, S., (2008) The benefits of tangible non-monetary incentives, Incentive Research Foundation

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