Effective Design Patterns for Sales Incentive Programs

60% of all U.S. businesses use non-cash sales rewards, spending conservatively $23 billion annually on these awards.  Following is a summary of research completed by the Incentive Research Foundation about the effective design elements of these sales incentive programs.  For purposes of the research, the respondents were designated either top performing companies (those with the highest revenue growth, customer satisfaction, and employee satisfaction scores in their industry) or average companies. 

Setting Program Objectives: Emphasize Multiple Behaviors

In the past, sales programs concentrated almost completely on increasing sales dollars.  The research showed that many more objectives are now used in these programs.  Most companies now use a mix of objectives, including: 

·       80% increasing overall sales

·       76% improving morale

·       58% productivity

·       47% gaining market share

·       27% increasing sales of specific products

·       21% changing the sales culture

·       17% promoting cost reduction

·       16% rewarding training completion

Rules Structure: Center on Quotas

Companies use multiple targets to achieve awards, including:

·       80% earn awards on achieving quota

·       71% earn awards by being a top performer

·       51% earned awards based on team performance

·       40% for discretionary sales awards

Rewarding the Right People: Expand Your Footprint

Designers are shifting from programs that just award the top performers to one that includes more of the middle.  More than half (56) of top performing companies said they wanted their program to reach more participants.

Program Funding: Start at the Bottom

Top performing companies are nearly 100% more likely than average performing companies to use a bottom-up budget model and fund programs as a % of income during the program period.  Other interesting notes were:

·       The average business used 7.2% of income to calculate budgets, top performing businesses use 9.4% of projected income.

·       Less than half of average performing companies in the United States have no top stop on their programs, but almost 80% of the top performing businesses have no top stop.

·        The typical sales person can expect to earn $3,916 in a top performing business annually, with the top performers in these companies earning over $5,000 in award.

What Awards to Use: Combination is Common

Sales programs can use one of many award types, including recognition awards, recognition events, merchandise, symbolic awards, gift cards, logo merchandise, individual travel, group travel, group incentive travel, and cash. On average, businesses use more than seven types of awards for sales incentives.

The top four awards used were:

·       72% use gift cards

·       44% use award points redeemable for a variety of things (including gift cards)

·       44% use merchandise

·       34% use group or individual travel

Multiple Programs: Efficiency in Consolidation

Most companies reporting use a single sales incentive program for the entire organization, but more than half of the top performing companies had multiple sales programs managed by one operation.

Program Support: Think Outside Your Walls

·       60% of all companies operate their own sales programs. 

·       60% of top performing companies used outside support from external partners.

·       Half of companies engage outside supplier expertise for best ways to motivate participants and over two-thirds using external award suppliers

Administration: Communications and Tech Support 

The IRF research indicates that 43% of a top performing company’s budget generally goes to program administration (design and operation) versus only 30% of a budget of an average performing company.

Over 70% of businesses use some level of program-specific technology to support their non-cash sales incentive programs.

Measuring Effectiveness: Multiple Metrics

More than 75% of top performing firms fully leverage the data produced by their programs to quide decisions in future program design.

Following are the most used metrics and %:

·       66% overall product sales in dollars

·       49% net new customers

·       37% product sales in unit

·       36% revenue

·       25% productivity

·       24% staying in budget

·       14% customer satisfaction surveys

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Effective Design Patterns for Employee Recognition Programs

Based on research from the Incentive Research Foundation, the majority of top performing companies in U.S. (those with the highest revenue growth, customer satisfaction, and employee satisfaction) are now using non-cash awards as a competitive advantage.  Based on this, the IRF analyzed several years of relevant research to identify the most noteworthy design elements that make these programs effective. The study looked at the design patterns of two main incentive type programs, employees and sales.  This post looks at the design patterns for employee programs.

EMPLOYEE RECOGNiTION AND REWARD PROGRAMS

Non-Core Job Roles

Organizations increasingly ask employees to take on additional roles and responsibilities that fall outside of their primary job duties (running innovation teams, increasing personal wellness, training other employees, increasing productivity, learning new techniques, etc.).  As these non-core roles do not typically fall under traditional compensation systems, companies are seeking non-cash recognition to award employees for this new engagement. 

Setting Program Objectives: Focus on Goals

Fifty years ago non-cash award programs were targeted primarily at two behaviors: safety and years of service.  Businesses now have a wide range of primary objectives with  their employee rewards programs aimed at achieving those objectives:

·       84% improving morale

·       58% improving productivity

·       48% improving customer satisfaction

·       41% recognizing years of service

·       28% promoting innovation

·       23% promoting wellness

·       14% promoting safety

·       9% rewarding training completion

·       8% promoting cost control

Determining Who Gets Rewarded: Reach is Key

The two key design priorities for these programs, by far, were making sure a program rewards the right people.  This was followed by a focus on ensuring the programs make recognition a part of the day-to-day activities.  These programs have shifted over time away from rewarding just the truly exceptional performance to as many solid-performing employees as possible…motivating the middle 80% to reach to improved performance.  

Developing Rules Structures: Goal-Driven

Of the top companies reporting, 68% used individual goal based earning schedules with awards earned at goal attainment.  In addition, 67% used top performing structures for individuals, 58% for team performance and 55% use discretionary awards.  39% of companies still use service anniversary milestone programs and 34% use nominated structures (person of the month etc.)

Top performing companies were significantly more likely to have goal-driven programs and significantly less like to have service anniversary programs. 

Measuring Effectiveness: Leverage Multiple Metrics

Research shows that top performing companies leverage analytics more than their average performing counterparts to measure program effectiveness. The top three performance metrics used were:

·       73% used productivity

·       49% used retention

·       49% used employee satisfaction

Funding the Program: Bottom Up

Most companies use bottom up budgeting and form total budgets from a % of participant income.  The exact budget % varies greatly by organization size and focus of the program. A small % of the budgets are developed top down by executives determining a budget number based on prior year spending adjusted by overall financial performance. 

On average, employees can expect to receive between $150 and $170 in non-cash awards on a annual basis.

Supporting the Program: Reach Outside

The study reports that the vast majority of businesses (two-thirds of more) use suppliers for awards and almost half look to suppliers for expertise in the best ways to recognize or motivate participants.

Program Consolidation: Key Design Pattern

42% of the companies have a consolidated program across the company but more than half the top companies having multiple programs. 

Determining Awards: Mix it Up

The most prevalent types of awards in employee programs are:

·       71% Gift cards

·       38% Merchandise

·       36% Travel

Over 80% of companies use more than one award with many using three to four types.

Administration: Investment in Tech and Communications

The research indicates that top performing organizations allocate a significant portion of their budget to design and operation (estimated at 49% of the total budget on average.)  As two-thirds of the respondents put program communications into broader companywide communications, some the estimated 49% may be a part of companywide budgets. 

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Award Program Value and Evidence

In our last post, we introduced the recent research conducted by the Incentive Research Foundation entitled 'Award Program Value & Evidence.' While the research provided more than ample evidence to support the use of non-cash awards for employee recognition, it went even further into the many other values of non-cash awards. 

Specifically it covers:

The Psychological Mechanisms Underlying the Advantages of Tangible

Non-Cash Rewards

• Mental Accounting
• Appreciation vs Entitlement
• Effort Justification
• Social Signaling
• Perseverance, Effort and Performance
• The Reciprocity Effect
• Caution in the Use of Tangible Non-Cash Rewards
• Hedonic Adaptation
• Lower Aspirations
• Financial Hardships
• Recognition at the Forefront
• Employee Benefits
• Organizational Benefits
• Timing, Specificity, and Authenticity Matter
• Caveats
• Measure the Benefits of IRR Programs
• Focusing on Hard, Tangible Benefits
• ROI Analysis
• Supplementing ROI with Change Point Analysis

For a copy of this important report please click here.

For more information on Ultimate Choice Inc.’s products or services or other white papers please contact us at Ultimatechoiceinfo@cox.net

Why Use Non Cash Awards

Just about every year the incentive industry comes out with some kind of survey, report or article on why you should use non-cash awards in your recognition and incentive programs.  Their most recent research leaves little room to dispute the fact that a well-conceived, well-run incentive, recognition, or reward program improves productivity and performance.

For a variety of reasons, non-cash has slowly become the dominant reward for non-sales employee recognition and incentive programs.  According to the Incentive Research Foundation, one study found that after six months of well-designed program companies will see average performance gains of 44 to 48 percent in productivity. Within this research, there was evidence that non-cash rewards work better than cash.

There has always been debate surrounding the best use of different types of rewards (intrinsic, extrinsic, cash or non-cash) but there is little debate as to whether rewards work to increase productivity.  While studies today focus on the emerging approach and the principles of award program design the discussion that emphasizes the use of cash and tangible non-cash rewards as symbols of recognition remains important, possibly even more so.

The recent study that discusses the cash/non-cash question quite extensively is titled “Award Program Value and Evidence.”  It is by far the best discussion we have ever seen on the subject.  While it covers territory that we have been discussing for years, it goes a lot deeper into those with sound psychological reasoning non-cash works so well. 

Executive management expects their investments in incentive, reward, and recognition programs to produce some return on investment.  This study presents a strong case for using non-cash reward programs to motivate employees and practical advice on how to measure the success of these programs to ensure goals are met.

You can download a copy of this study here.

For more information on Ultimate Choice Inc.’s products or services or other white papers please contact us at Ultimatechoiceinfo@cox.net