Inventor and entrepreneur Elon Musk was born unceremoniously in South Africa in 1971. A precocious child, at the age of only 17 he decided to move to Canada and study at Queen’s University. A few years later, he transferred to the University of Pennsylvania with an ambitious dual-study path of economics and physics. Soon after, he pursued a Ph.D. at Stanford in applied physics, but famously quit that program after only two days to start his first software company, Zip2. After he sold that company, he founded an online bank that would eventually become PayPal. PayPal would be acquired for $1.5 billion, and he then decided to build spaceships at his new company SpaceX. His many other ventures include his widely known electric car company Tesla.
OK, so you probably already knew a lot of this, and you certainly didn’t choose this article to learn about Elon Musk. But why did he decide to move to leave South Africa in the first place? How did he decide to quit Stanford shortly after starting? And why in the world did he decide to develop spaceships, tunnels and self-driving cars? The answer is this: We don’t really know. And Elon Musk probably doesn’t know with 100% certainty either.
Why do any of us do the things we do?
Why do researchers at universities invent new technologies that can dramatically change the way we interact with the world? Why do employees at specific companies go above and beyond at work, increasing revenue and market share for a business they don’t own? Why do you buy a specific brand of toothpaste when you’re at the grocery store? How did you decide on the clothes you’re wearing today?
To make the point plainly: Why are you reading this article right now?
Let’s face it, humans are complicated creatures. The left hemisphere of our brain quietly, or sometimes forcefully, reminds us to make decisions rationally. It tells us that we ought to think things through, weigh the pros and cons, take existing evidence into account, and ultimately come to a conclusion based on facts and evidence.
Meanwhile, the right hemisphere pushes back
—and pushes back hard. While we’re busy trying to account for all the logical reasons that a given decision is the “correct” one for us, the right hemisphere—the part of the brain responsible for emotions, creativity, and big-picture thinking—pulls us in the opposite direction. Why? Because that direction is often more fun and feels better.
In fact, just about any attempt to analyze human behavior is going to involve an investigation of how these opposing internal forces—the rational and the emotional, to put it simply—end up playing themselves out. How do we negotiate the competition between what information instructs us to do and what desire draws us toward?
What if information and desire weren’t in competition? When a particular course of action is both logical (making sense on paper with a measurable outcome that’s subjectively positive) and emotionally satisfying (feeling good to be doing it), it’s safe to assume that the average person is going to follow that course of action in 99.9% of cases.
When you give people something that makes both their logical, rational, parochial left brain and their emotional, feeling, creative right brain happy, you can directly influence their choices, performance, and attitude. When you’re helping people feel good about their decisions on multiple levels, their behavior becomes a lot easier to predict- that’s exactly what incentives do for us.
Incentives and Economics
Before we go any further, let’s back up a little. We’ve acknowledged that humans are complicated creatures. But are there any important sectors of human life where logic wins out 100% of the time and humans really do fill the shoes of their Aristotelian label as the “rational animal?”
According to most classical and neoclassical economists, there’s no real tension in the human mind when it comes to people as economic actors. If you’re not familiar with economics, you might be surprised to hear this. Isn’t this totally at odds with our actual life experiences? If people are completely rational creatures when it comes to all their decisions surrounding consumption—like which smartphone to buy or which brand of car to drive—what’s up with the advertising industry? Aren’t those guys going about it all wrong, hitting people with one emotional appeal after another in an attempt to sell as many widgets as they can?
Common sense tells us that people don’t make all their economic decisions the same way that they solve math problems. We know from experience that humans are much more complicated and emotional than that.
Believe it or not, though, economists have argued precisely the opposite for years. Up until recently, the average economist would have tried to convince you that humans were little more than rational actors, looking to maximize their economic utility; that is, consume and spend in the most rational way possible. While there are still plenty of so-called experts in the field who will toe this line, this false conception of human economic behavior has lost traction over the last couple of decades, thanks to something called behavioral economics.
Let’s take a closer look at what the average economist used to believe about how human beings make decisions.
Rational Choice Theory
Previously, virtually every economist subscribed to an idea known as rational choice theory. According to this economic theory, people only make decisions pertaining to their economic lives in a rational, logical way.
How does this play out? In theory, we take all extenuating factors and information into account before making decisions, like those for jobs or product purchases.
Should I work some extra hours this week? Maybe. Let me think it through and come to a purely rational, numbers-based decision. Things such as how I’m feeling, how much I dislike my boss, or how much money I want to spend during the weekend won’t be taken into account.
Which make and model of car do I want to buy? According to rational choice theory, I’m going to go with the one that’s the most logical choice based on my current circumstances. In other words, there’s no way I’d ever go for the impractical sports car when I’ve got a family to think about. And there’s certainly no way I’d purchase a V-8 powered SUV when a 4-cylinder economy car would get me from point A to point B with better fuel economy.
As you probably know, this isn’t how people make decisions. People don’t do the things that they do for purely rational, logical reasons. Other assumptions have to come into play here. For example, we must assume that people have access to perfect and complete information in order to make these perfectly complete and rational decisions.
It’s pretty easy to see how absurd this purely logical thought process can be.
Moving to a Behavioral Economics Model
Beginning in the 1950s, people started to challenge the purely rational way of thinking.
One of the first was noted economist Herbert Simon. According to his bounded rationality model,Simon argued that people simply don’t have access to the perfect information that would cause them to always make rational decisions in their best interests. This may seem obvious to us today, but it was a rather groundbreaking suggestion at the time.
In the decades that followed, psychologists started weighing in. In particular, Gerd Gigerenzer, Daniel Kahneman, and Avos Tversky won the Nobel prize in economics for their work on heuristics in human decision making. Essentially, they claimed that humans don’t really think through every decision from beginning to end. Instead, they use shortcuts—heuristics—to make decisions.
This really is straightforward when you think about it. Without heuristics, it’d be pretty difficult to make any decisions about how to go about your day. You’d spend so much time trying to decide what to have for lunch that you’d never make it to your afternoon meeting. In fact, you may end up going hungry due to such slow decision making.
Thinking Fast and Slow
Coming up to the turn of the century and beyond, economics has seen a massive shift. The neoclassical model of the rational, fully informed, 100% logical human subject is no longer in style. In fact, taking this model for granted could get you laughed at in some economics circles, although by no means in all of them. (Some economists continue to hold onto these false assumptions.)
Kahneman and Tversky are considered to be among some of the founding thinkers of what’s now generally referred to as behavioral economics. Kahneman claims that we actually do our decision making in two separate states of mind: Type 1, or “fast,” thinking, and Type 2, or “slow,” thinking. As it turns out, most of our activity is habitual, Type 1 thinking. We don’t take the time to reason our way through every situation that’s presented to us. And, even when we make the switch over to Type 2 thinking and opt to really puzzle our way through a situation, we ultimately may find ourselves switching back to Type 1 thinking. Why? Because there’s too much information, and too little time. In the end, and as we’ll discuss further, most of our decision making is a combination of emotion and habit.
So, what does this mean for you as a businessperson? As we’ll see, it means a lot.
Behavioral Economics and Business
It’s hard to point to a single book, paper, or lecture that really turned the economic tide. There are, however, a few significant works that stand out. In addition to Kahneman’s Thinking Fast and Slow, Thaler and Sunstein’s Nudge points to the way that human behavior—particularly what we’d consider to be so-called economic behavior—can be manipulated with the proper nudge in the right direction.
According to Sunstein and Thaler, there’s no such thing as a “neutral” setting for someone to make a decision. That’s just another economic abstraction (read: falsehood) from the days of old. Instead, we all find ourselves in some sort of context whenever it comes time to make a decision. Whether you’re an employee deciding whether to put in a little extra work to reach a goal, or a cash-strapped 20-something shopping at the grocery store, your context is going to play an important role in your decision making.
Here’s the thing about those contexts, though: Sunstein and Thaler found that small changes in an environment or experience—what we’d otherwise probably consider to be too insignificant to have any real impact on an individual’s decision making—could completely alter people’s habits and choices.
Sunstein and Thaler call this “libertarian paternalism.” If that looks a little bit like a contradiction, you’re right: It is. But Sunstein and Thaler intended it that way. What they meant to communicate is a concept that combines leaving free will intact and letting people make their own decisions with giving them a nudge in the right direction to help them make the best one possible.
In Nudge, they give all sorts of examples of how this approach can be put to use for people’s benefit. Don’t make people opt-in to their 401(k) plan: enroll them automatically and make them opt out. Automatically rebalance portfolios, rather than forcing clients to request it. These sorts of approaches are important for one simple reason: people are often lazy, so it’s often easier to do nothing than to do something.
Following that same line of thinking, then, modifying human behavior seems like a Herculean task. If people are inherently lazy (Sunstein and Thaler prefer the term “inertia” to “laziness,” but let’s be honest here), and if decision making is largely contextual, then how do we change people’s behaviors?
How do I get my sales team to break this quarter’s goal?
How can I convince a distributor to promote my product more than my competitor’s?
What can I do to create shopping habits with customers, so that they don’t wander away back into the wilderness of the free market?
The answer? Incentives. Powerful, compelling, logical-emotional, habit-creating incentives.
It’s the Incentives, Stupid
In 2005, Steven Levitt and Stephen Dubner released a book called Freakonomics. It’s hard to overstate how important this book was in changing the way that many modern economists think—and it was a popular bestseller to boot.
As Levitt and Dubner point out in the introduction to their sequel, Superfreakonomics, the book really comes down to one thing. “If pressed, you could boil [the main idea of the book] down to four words: People respond to incentives.”
Throughout the book, Levitt and Dubner essentially argue that economics is all about incentives. We may not realize it, but the vast majority of our behavior is incentives-driven.
According to the authors, incentives are the “cornerstone of modern life.” If you want to solve “just about any riddle”—whatever that riddle may be—understanding how incentives work is essential to making it happen. If you don’t understand what incentives are, how they work, and why they matter, then you’re going to have a tough time grappling with modern economic realities.
What is an Incentive?
Simply put, an incentive is any external factor that influences our behavior in a predictable way.
We’re exposed to incentives from a very young age, and they take a variety of forms. Levitt and Dubner characterize incentives by type, arguing that incentives can be economic, moral, or social. They’re not mutually exclusive, though. It’s possible for someone to be influenced by social, moral, and economic incentives at the same time. For example, consider some of the reasons why the average person might abstain from committing a crime:
- Moral incentive: we’ve been taught that committing a crime is morally wrong.
- Social incentive: if we commit a crime, we may experience judgment and social exclusion from others.
- Economic incentive: if we’re caught, we might be fined, jailed, or lose our job.
On the surface, incentives seem fairly straightforward. You give someone a reason to do something, and they do it. That’s not complicated, is it?
It’s true: on the one hand, incentives are deceptively simple. At the same time, though, it’s possible to understand what incentives are, but still struggle when it comes to applying them in real life. This sort of thing happens all the time. Business owners want to put incentives into practice to influence employee and/or customer behavior (something we strongly support if you want to be successful). But things don’t always turn out as you’d planned. As Levitt and Dubner readily point out in their book, incentives may not have the desired effect if they’re executed incorrectly.
Let’s look at an example from Freakonomics. Levitt and Dubner cite the case of a daycare center that was having issues with parents showing up late to pick up their children. At the end of the day, daycare workers were being forced to sit around for hours on end, waiting for a handful of parents to show up. The daycare wanted to come up with a way to fix this problem, and they decided to create what we’d call a negative incentive to discourage the behavior
What was the negative incentive? Simply put, any parent who failed to show up on time would be forced to pay a $3 fine. For parents with children in daycare five days a week, that could quickly add up to an extra $50 or more each month. The daycare assumed that, after being fined a couple of times, parents would get their acts together and pick up their kids on time.
So, what was the outcome? The results might surprise you. Not only did the fine fail to discourage parents from picking up their children when they were supposed to—it actually made the problem worse. That’s right: within a few weeks, the problem was no longer just a handful of parents showing up late. Before they knew it, large numbers of parents were showing up later than ever to pick up their children.
What was going on here? A couple of things. For one, that $3 fine was too small. If a parent is already paying hundreds (or even thousands) of dollars a month for daycare, an individual fine of $3 is a drop in the bucket. Sure, it could add up over the course of a month. Logically speaking, most parents should (in theory) assess the fact that $3 x 20 days is $60 and opt to save $60 by picking up their kids on time. But what have we learned so far? People aren’t purely rational creatures when it comes to economic decision making.
On top of the fact that the fine was too small, it turned out that it was encouraging parents to leave their children late. Why? Well, previously, parents felt that it was their duty to come pick up their children on time. Sure, some parents were routinely late—but most of them knew that they needed to be there at the agreed-upon hour. There was a social incentive in place there: they didn’t want to do something rude by showing up late. There’s also a moral incentive to consider: we know that it’s wrong to be irresponsible and fail to stick to an agreement.
With a $3 fine, though, they could suffer a very minor negative economic incentive in exchange for absolving them of the more uncomfortable social and moral incentives. In other words, they suddenly felt fine about leaving their kids at preschool a little later. After all, they are paying a little extra for it, aren’t they?
Incentives are powerful, then, and they can have dramatic effects on people’s behavior. But not always the effects that we intend. That’s why it’s important to put the right kinds of incentives in place—at the right time, within the right context, and using the right methods—in order to get the results that you want.
Positive vs. Negative Incentives
What can we learn from the above example when it comes to incentives? It was just an isolated case, after all. So what does it prove?
Uri Gneezy, professor of economics at the University of California, San Diego—and thought leader in the field of behavioral economics—wondered the same. Could this sequence of events be replicated? Was there a causal link between fining parents for being late and the parents showing up even later? Or, was the negative effect of the fine just an unfortunate correlation in this particular case?
Gneezy decided to run an experiment to find out. First, he selected 10 daycares at random in Haifa, Israel. From amongst these 10, he chose 6 to use for his experiment (again, at random), leaving the remaining 4 as a control group. In each of these 6 randomly selected daycares, a fine was introduced for parents who picked their kids up more than 10 minutes later than the agreed upon time on any given day.
Guess what happened? The same thing. Almost immediately, parents began showing up later. In fact, after a given period, the number of parents coming to pick their kids up late actually doubled on average. Gneezy managed to reproduce the effect of imposing the fine with almost startling predictability.
So, what’s happening here? As we pointed out above, the fine in this instance actually gave parents a sort of economic permission to leave their kids at daycare a little later. While there was a new economic incentive in place for the parents to pick up their kids on time, two other important incentives—a moral one (failing to stick to an agreement is wrong) and a social one (I’ll feel embarrassed if I show up late repeatedly)—were actually removed from the equation.
This, in short, is the difference between what we call positive and negative incentives.
As the saying goes, there are two ways to lead a horse. You can dangle a carrot in front of it and encourage it forward—or you can follow behind with a stick, prodding it along repeatedly. Over time, a horse following a carrot will become increasingly fixated on the reward at hand—especially if you allow it to nibble a little here and there. At the same time, a horse being prodded along mile after mile will begin to grow irritated. And, eventually, it’s going to kick. Hard.
The metaphor is a good one. Human behavior is surprisingly similar: We typically respond well to rewards, and we react to forceful prodding (physical, mental, emotional, financial) with irritation. Sometimes, we’ll actually resist the prodding just for the sake of foiling the plans of whoever’s holding the stick. Horses will do the same thing. At some point, they decide they’re done being prodded. No more forward movement, period.
In a nutshell, this is how we can characterize the difference between positive and negative incentives. A positive incentive is a dangling carrot. A negative incentive is the unpleasant stick beating our behind.
In the daycare example above, how were the given incentives functioning? Were they positive, or were they negative? Let’s take a moment to consider.
Initially, there was no economic incentive involved. If a parent picked up their child late from daycare, no fees were going to be assessed. Suddenly, a negative economic incentive was introduced: if a parent showed up late, they’d have to pay a very small fine. That fine was a stick: the parent knows it’s there, standing by, ready to prod them should they show up late.
On the flip side, though, there were actually two positive incentives at play. Prior to the introduction of the negative economic incentive, parents picking up their children late felt guilty. They knew it was morally wrong and socially uncomfortable to arrive after the agreed upon time. Once they could just pay a fine, though, they no longer felt bad about coming 20 minutes (or 2 hours) later than they were supposed to.
Think about this for a moment. The daycare had intended to introduce a negative incentive, but what happened? Instead of being a stick, the fine turned into a carrot. Pay a few dollars, and the parents got 3 things:
- Absolution from the moral wrong of breaking an agreement,
- Relief from the social discomfort of showing up late, and
- Extra time to run errands, grab a cup of coffee, or wrap up their workday—without feeling stressed or in a hurry to be on time.
This example not only demonstrates that sticks don’t work all that well; it also shows just how unpredictable incentives can be when framed negatively.
Carrots and Sticks
Ian Ayres, a professor of economics at Yale, decided to explore the idea of reward vs. (potential) punishment in greater detail. In his book Carrots and Sticks, Ayres discovered something particularly interesting about incentives. While positive incentives (such as rewards) are a powerful thing, they’re usually only effective if implemented in a certain way.
Ayres cites a study from 1981 performed by Richard Thaler at the University of Chicago. In the study, Thaler offered people a choice of two rewards: They could have an apple one year from now, or two apples in 366 days. The vast majority of people chose the two-apple option. Why? Well, if they have to wait a year for their apple, why not wait an extra day and get two? After waiting an entire year, an extra 24 hours doesn’t make much of a difference.
Thaler followed up with a second question, though: If you could have an apple now, or two apples sometime tomorrow, which would you prefer? In this case, the vast majority of people reversed their decision. They didn’t want to wait until tomorrow. They wanted that apple now. Quick. On the double!
Why? Because humans feel more certainty when a decision is shorter-term in nature.
Just think of all the crazy stuff that could happen between today and tomorrow. You’re hungry now, but what if you’re stuffed tomorrow when he hands you those two apples? Or, what if you decide you don’t like apples? What if you’ve got a lunch date immediately afterwards, in which case the apples will just sit in your car and spoil from the heat? What if—you get the idea.
A lot of us are prone to worry. Being concerned for the future is an evolved human tendency. In healthy doses, it’s a good thing. If we never experienced any anxiety at all, we wouldn’t be long for this world. We’d engage in all sorts of risky behavior, and we’d put ourselves into dangerous situations on an hourly basis.
For most people, though, anxiety about the future can get a little out of control. The human aversion to uncertainty is well-documented, something that Ayres’ research showed.
So, what does this mean when it comes to incentivizing human behavior?
Simply put, positive incentives in the form of rewards can be incredibly powerful. But humans will almost always choose a smaller reward today over a bigger reward later. And, if a reward is too far into the future, guess what happens? People discount it altogether. As the saying goes, a bird in the hand is always worth two in the bush.
Let’s go back to our carrot and stick metaphor. If you stick a tiny carrot at the opposite end of a field—hundreds of yards away—and try to direct a horse over to it, you’re not going to have much luck. Even if you make it a huge carrot, the situation likely isn’t going to change. It can be the biggest carrot that horse has ever seen (we’re talking a freakishly huge carrot here), but that doesn’t matter. It’s so far off, the horse can barely see it. Plus, it’ll take ages to walk all the way over there.
In this situation, you might give the horse a poke with your stick to get it to budge. The horse might move forward, too, and this could lead you to some false conclusions. Maybe sticks do work better than carrots after all. Maybe negative incentives are more powerful than positive ones.
This conclusion would be flawed, though. The problem isn’t with positive incentives. It’s with the way you’re attempting to use them. Dangle a carrot right in front of the horse and allow it to take a nibble. Toss the carrot just a quick trot away, and the horse will rush straight to it. Keep tossing carrots out in front of you, and before you know it, you’ll have moved the horse all the way across the field. Meanwhile, try prodding the horse in its behind for the next 500 yards… and you’ll end up with a kick to the face. (If you’re already applying this analogy to your own incentive programs, that’s great. Save those ideas as we’ll revisit this concept in tangible ways later.)
The bottom line here is this: Positive incentives are practically always superior to negative ones. But they must be implemented in the right way in order to be effective. That’s why it’s important to have a well-informed strategy when developing an incentive program for your business.
Making Incentives Work for You
Working in the incentives industry, there’s one thing that’s become clear to us after several years of working with clients both large and small: No two clients are ever the same. That may seem obvious at first glance, but it’s important to keep in mind. The same way that it can be difficult to predict what effect an incentive might have, it’s also important to consider what the needs of your individual organization happen to be. At the end of the day, real world experience is the key to designing a corporate incentive program that has both the intended impact on your workforce, dealers or customers and aligns with the unique needs and values of your organization.
The takeaway here? As you continue through this article , keep thinking of your ideal incentive program, not some one-size-fits-all program that you found on Google. There’s not a company in the world that couldn’t benefit from a custom incentive program, if it is designed properly around its specific needs.
At the end of the day, incentives are all about engagement. It doesn’t matter whether you’re talking about incentivizing employees or retaining customers: In both cases, you’re looking to increase the target’s engagement with your company.
The numbers are clear on this one. According to a study conducted by Gallup teams that actively work to increase engagement within their organization will see increases in both customer satisfaction and sales. These aren’t small increases, either. On average, customer satisfaction increases by 10%, and sales numbers shoot up by 20%.
With numbers like these, it’s shocking just how few companies really choose to focus on increasing engagement with their teams. Of course, the numbers make sense when you think about it. After all, wouldn’t a properly engaged, focused, and dedicated workforce result in higher sales numbers and increased customer satisfaction? Unfortunately, though, most companies tend to neglect or even completely overlook the importance of this aspect of their overall sales strategy. Marketing and product development are important, of course—but motivating your sales team is where you’ll really trigger major jumps in revenue.
So, how do you increase engagement with your team? It’s impossible for a large corporate organization to carry out daily engagement with, say, each individual service technician, parts manager, or HR employee. The sheer amount of labor and management involved would result in a negative return. It is possible, though, to put the necessary systems in place to ensure that this engagement happens on its own.
Those systems are ongoing incentive programs. These programs can be sales contests, dealership network spiff programs or customer rebate programs. But specifically, we’re talking about programs that are separate from traditional salary or commission.
With the right incentives, your team can be valued, motivated, and successful. We already know that any form of increased engagement can result in a 20% jump in sales. Remember, though, salespeople are commission-motivated. Sales is often thankless, exhausting, draining work. People don’t get into sales just because they enjoy the work. They pursue a career in sales because they’re financially motivated.
Imagine the combined effect of increased engagement and financial incentives for your sales team. The sky’s the limit.
Case Studies: Incentives as Game Changers
At this point, you might be thinking: Okay, sure, all of this sounds great. Incentives drive economic behavior. Increased organizational engagement, increased sales, I get it. But where’s the proof that this will work for my organization?
Over the years we’ve worked with organizations across a number of industries to drive increases in sales, customer retention, and customer satisfaction. Let’s take an (anonymous) look at how incentives can change the game.
One of our clients is in the auto industry. They came to us with a problem. Their product—the vehicles they’re looking to sell—isn’t actually being sold to the end user by a member of their sales team. Instead, their product makes its way from their inventory onto an auto lot at one of over 400 independent dealerships nationwide. This meant that literally thousands of individual salespeople were responsible for selling their vehicles to potential end users. The problem, though, was that they had no control over the preferences and pitches of those salespeople.
They needed to increase their market share of new, economy-priced vehicles at each and every one of these dealerships. The existing sales incentive, though, favored the sale of higher-priced vehicles. After all, a salesperson at an auto dealership who sells a car with a higher MSRP gets a commission based on that price. Why would they try to sell a cheap vehicle to a potential customer, when upselling them to a more expensive vehicle meant a bigger commission for them? This is an example of an existing incentive conflicting with the needs of a business.
What we needed to do was change the behavior of those salespeople. We had to figure out a way to incentivize them to sell a cheaper vehicle for less commission. In the end, we created a custom OEM incentive program that rewarded independent salespeople via reloadable debit cards for selling our client’s lower-priced inventory.
The result? A year-over-year market share increase for the lower-priced vehicles while the program was in place. In year 1, the sales of incentivized units hit 1,165. At that time, our client’s vehicle market share was 28%. The next year, the sales of incentivized units jumped to 4,220, a 362% increase. The vehicle market share for our client jumped, too, from 28% to 30.78% in this category. In year 3, sales of incentivized units increased to 5,379, with market share climbing all the way up to 35.05%. That’s more than a 25% increase in existing market share from year 1 to year 3.
Just increasing sales isn’t the only thing that incentives can do, though. In another client case study, our firm worked with a large Fortune 500 organization that was concerned about data collection inaccuracies. They had all of the systems in place to capture data properly at each step of their company’s various departmental processes. The problem was worker behavior: Their administrative professionals just weren’t submitting their monthly reports in a timely, structured, consistent way, and the stick, or penalties, weren’t set high enough by certain managers to have meaningful impact.
To correct this behavioral issue, we created a stair-stepped incentive program. We worked to incentivize our client’s administrative employees to file their reports on time, with rewards ranging from $10 – $40 per report depending upon frequency and timeliness. Now, $10 to $40 might not seem like a lot for sales professionals, but remember, these were the lower-paid administrative employees who weren’t typically given the opportunity to earn extra cash. Many of these individuals ended up treating the incentives as lunch money, and just for doing their job, they essentially received a handful of free lunches per month (or at least the cash to purchase them).
The results of this program? The data speaks for itself. Monthly reporting increased by 360% year-over-year. The admins were thrilled with the extra cash. And the company was thrilled that their monthly dataset was finally complete.
Reward Options for Employee Incentives
Employee incentives can take different forms. A lot of companies make the mistake of simply handing out a cash bonus to an employee based on performance. While this can be effective to some degree, it simply can’t match the impact that a personalized, branded debit card or engaging online portal has on your team.
Think about it: When you hand out a bonus check, your employee deposits it in the bank. Maybe they don’t even get a physical check; it might just be a direct deposit that’s added to their normal paycheck. Either way, those funds are immediately commingled with whatever is already in their account. By the end of the week (maybe even sooner), they’ve forgotten that the incentive they received is what’s paying for their night out.
With a branded debit card, your company’s logo is in front of your employee’s eyes each and every time they go to spend a portion of their reward. They’ll begin to subconsciously connect the behavior that led to the receipt of the incentive—for example, increased sales performance—with a pleasurable activity that they enjoy, such as a dinner at a fancy restaurant or a round of golf on the weekend. By making this subconscious connection, your employees will be even more inclined to repeat the positive behavior that you’re looking for—whatever that behavior may be.
Reloadable debit cards aren’t your only option, though. Another popular option is a customized, branded, secure, online merchandise portal. Employees receive their own login credentials and can log into their personal rewards account at any time to check on how many points they’ve accumulated. With points in hand (figuratively, at least), your organization’s team members can shop for electronics, tools, sporting goods, and more.
If you’re familiar with this sort of points system shopping from airline or credit card rewards, don’t confuse those systems with what’s possible, or what’s recommended. We’ve actually found that the best practice is to make sure that point equivalents are designed to match with street pricing for the items on offer, unlike the inflated pricing typically associated with credit card or airline reward points systems.
Points-based programs can take multiple forms, too. You might pay out points based on individual sales numbers, with each employee receiving a personalized amount of points as they hit their goals. Or, you might reward an entire team with the same number of points per person once their group hits its quarterly sales goal. Some companies opt to mix things up with points matching, or even charitable points matching with an accompanying donation to a local organization. The sky’s the limit when it comes to creative possibilities.
By now, you have some idea of what incentives are and how they work. As we’ve seen, incentives are at the core of human behavior. When it comes down to it, the answer to the question “why do we do the things that we do?” is surprisingly simple. It’s the incentives!
But remember, incentives aren’t limited to economic behavior. Moral incentives influence our choices as we differentiate between right and wrong, and social incentives have a major impact on how we navigate our relationships and interactions with the people in our lives.
Incentives can be complicated, just like human behavior. Predicting their efficacy can be a challenge, too. Sometimes they can have unintended effects, particularly if they’re implemented in the wrong way. Plainly put, you don’t want to go the route of the daycare businesses mentioned earlier.
It’s all about taking the right approach to behavior modification.