HR & Management

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The science of incentives

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Here’s a thesis: SMEs don’t use incentives enough. Incentives work, we’ve all experienced it ourselves. A pat on the back by co-workers, or a little bonus, can mean more to us than our pay slips. Incentives help us to reach our goals – in business or in personal matters – and yet they’re so rare in working life.

Incentives work in all kinds of scenarios. Take the 2009 case study of 900 smokers at General Electric, all of them had the same base motivation to quit lighting up – longer lives, better health, more money, the list goes on. Apparently though, these benefits were not a strong enough incentive to make them quit on their own. Researchers split these 900 smokers into two groups, giving one group information about quitting and support groups, the other group the same information and the promise of $100 if they completed a quit smoking program. After about 15 months, nearly ten per cent of those who had been offered cash had stayed smoke-free in comparison to just five per cent of those with no cash incentive.

Incentives work. So, why aren’t more successful mid-cap businesses using incentives? I’m not just talking about sales. Why aren’t your customer service representatives being pushed to excel like your sales team? Perhaps because so many organisations are worried about getting it wrong, and many have in the past.

Inaccurate payments are a good reason for that concern. In a previous role I was paid £46,000 more than I was due. I was a sales manager at the time, one of three, and when I reported the error it turned out it was actually a £138,000 worth mistake. No one had noticed that each of the three sales managers was overpaid. These mistakes happen both ways: imagine you are underpaying some of your staff by that amount – it destroys the whole purpose of incentives and leaves you with a demotivated workforce.

Too often people are not sure what they are being rewarded for. Incentives can’t be motivational if the reward is obscured, which happens when incentives are not clearly explained, cannot be easily tracked and are not timely. Before they started managing their compensation process, many businesses claim it was like incentives were calculated behind a curtain and no one knew what behaviours were being rewarded. Muddled incentives hurt the bottom line through lost sales and drain the team’s efficiency.

We need to understand the science of incentives and use the right tools to get the most from them. Some of the most technologically advanced companies in the world still use Microsoft Excel to calculate their commissions. Spread sheets aren’t made to do the complicated task of incenting employees. Businesses require systems which make the most of current technology and can look across industry, customer and employee data to teach us how best to incentivise our workforce – no matter what the size the organisation.

Christopher Cabrera is the CEO of sales performance management firm Xactly.

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