Change management - Incentives

Managing Change Using Motivation, Rewards and Incentives

Winston Churchill once said, "There is nothing wrong with change if it is in the right direction."

The author and former prime minister likely weren't speaking specifically of the business environment, but he could have been. Change in modern business is as inevitable as the tides, and reinforcing behavioural change is an ongoing activity in an employee's performance management process. If managers are to promote and sustain positive behavioural change, alongside goal setting and various feedback and coaching mechanisms, rewards and incentives can be handy tools.

"Most managers and people working in organisations would probably say they're always in a state of change," said Tom McMullen, North American reward practice leader, Hay Group. "If you want to get results you need to have the behaviours to get results, and rewards and incentives are reinforcers of behaviours. I don't think rewards and incentives drive behaviour, but they definitely reinforce what's important in the organisation."

McMullen said using rewards and incentives not only helps to ensure goals are perceived as important, they can help managers ensure that goals are achieved the right way.

The Psychological Element

Speed in the business arena is increasing rapidly thanks to technology and its flattening of the global marketplace. Faced with the need to battle more competitors than ever before, organisations are struggling to differentiate themselves, and one misstep could literally mean the difference between mere survival and major success. It's critical for employees to execute on strategic objectives immediately.

Unfortunately, the nature of change, however constant, can be uncomfortable. Employees may resist complying with a new way of doing things whether they are dealing with increased workloads due to layoffs, a new system integration, or mergers or acquisitions. Mistakes are common, as is backsliding. Management may demonstrate the new behaviours, and employees may imitate them in the short-term, but without the behavioural reinforcers McMullen spoke of, the tried, true and familiar will win out in the long-term performance pool.

"It's human nature for folks to want to be rewarded, and subconsciously those rewards help to solidify the change," said Joseph DiMisa, senior vice president, Sibson Consulting. "Rewards and incentives help to smooth over any fears, doubts or uncertainties caused by the unknown, and when you use different motivational vehicles it shows there's some awareness on the organisation's part that there will be discomfort."

When employees are given some consideration, changes can be executed more smoothly, DiMisa said. If they aren't, the change likely won't take place at all.

"Organisations can force change by putting new people in or using a punitive approach, but that usually creates another set of issues," he said. "The other thing that typically happens if you don't use some sort of performance management or reward system is you run the risk of being perceived as insensitive. People were doing things a certain way, and it was acceptable up to this point. Now you're asking them to change, and change is always difficult, for anybody."

Insensitivity or hard-nosed operational tactics might slide during an economic downturn when jobs are scarce, but after the recession, insensitive employers likely will lose employees.

"Things always get better," DiMisa said. "Eventually organisations are going to be staffing up, and there's always demand for top talent. Think back to '01, '02, '03. A lot of reward and incentive programs were cut back, and when the economy improved and hiring was needed, it was harder to get people in, and you had to pay a lot of money to get folks in. If you'd kept a consistent policy, retained your top people and been sensitive to some of the things that were going on, you would have had a smoother transition."

Aside from recruiting, performance can suffer when managers are not sensitive to the effect change can have on the workforce. Without preparation and positive reinforcement in the midst of change, engagement and employee morale are at risk.

"Regardless of what brings it on, worker engagement tends to drop off pretty significantly in the midst of any change. It's really important at that time, through whatever means—communications, rewards and incentives, or everything all together—to make sure all retained employees are on the same page, and rewards and incentives go a long way in doing that," said David Wentworth, senior research analyst at The Institute for Corporate Productivity (i4cp).

In terms of engagement, the question is not whether or not a performance dip will occur in the midst of a change. It will, said Mark Vickers, vice president of research at i4cp. The question is how far and how long it is going to dip.

"You want your employees to stay engaged during that time so that productivity dip is short and shallow. One way to do that is through compensation and reward strategies, but it's also important to motivate them," he said. "Maybe that's telling them they did a great job or 'Thank you. We know that you're stretched and that you put in a lot of long hours, and we really appreciate it.' Sometimes it's giving your top talent more responsibility to work at home or to have more flexible work schedules. We've been pretty dollars-and-cents-oriented, but these other things can be motivational tools."

Customization: What Works for Whom?

Traditional reward and incentive programs focused on cash-based bonuses offered at specific times such as the end of a performance review cycle. But the economic downturn has negated or severely limited incentive budgets as cash-strapped organisations reallocate resources with an eye on survival. Distributing big bonuses simply isn't possible for most companies.

Further, there has been a shift in recent years toward a pay-for-performance methodology where salary increases are awarded on merit, and many experts advocate its use. But this system is also problematic. Time is scarce these days. To pay for performance means managers must pay close attention to each employee. If done right, it requires managers to collect a significant amount performance management data, engage in continual feedback and development discussions, and many organisations go the easier route—evenly distributing dollars across the workforce—to avoid the work.

McMullen said this is a mistake, as companies with distinct businesses should match reward programs to different business strategies. He said the key is to know what employees value—and motivation or behavioural profiles can vary substantially across different functions in an organisation as well as by demographic—and using a total rewards system, tailor rewards or motivational tools to ensure they resonate with the target audience.

"For example, what's attractive to a person in the sales function is very different than to a person in R&D (research and development)," he said. "To attract someone with an entrepreneurial spirit into the sales group, you might have to offer an incentive program that has a high return for significant achievement. R&D folks might have a different motivation profile because the achievement of R&D objectives tends to be longer-term in nature. An aggressive short-term incentive plan wouldn't work as well as the opportunity to be published in an academic journal or the opportunity to attend conferences. Those aren't cash rewards, but they are something the employee sees as valuable."

One could also distinguish motivational or behavioural profiles by generations. Veterans who have been in the workforce a while tend to be more energised by rewards that impact their legacy or how their contribution to the organisation will be perceived. Thus, they may be motivated by opportunities to mentor junior employees, act in supervisory or managerial roles or get a certain type of recognition.

DiMisa said the younger generations like the Millennials can have vastly different reward systems than Gen Xers or baby boomers, and Wentworth agreed. Again, the trick is to determine who will be motivated by what.

"We've seen companies have success using a simple survey," Wentworth said. "More companies are moving toward a flexible, total rewards thing because compensation doesn't mean the same thing to the same employee. Younger generations are more interested in training opportunities than older generations. The desire for pay increases as a reward goes up as the age groups get older. The middle group with young families appreciates flexible work arrangements a lot more than some other groups, so there is no one thing. You should be looking at several things and adjusting accordingly."

Vickers said offering development opportunities can appeal to a broad range of groups within the workforce but younger employees, particularly those just starting out in their careers, want to make themselves as valuable as possible. Offering the chance to earn more experience in an organisation via talent moves across functions or departments can be motivating and facilitate retention efforts.

Further, employees aren't the only ones to whom rewards matter. DeMisa said non-cash rewards can have as much or more of an impact when they are sent directly to the home—such as flowers for spouses and dinners out for families—and they likely will be remembered long after a cash bonus has been spent.

"People always remember that special night out on the company or the trip to some exotic place that the spouse was allowed to come to," he said. "They don't necessarily remember that check that went into their bank account because it probably went to pay a bill. Certain non-cash items that go directly to the home really go to the spouse thanking them for helping support that very loyal employee."

Three Elements of an Effective Rewards Program Employee recognition can be the glue that binds different initiatives together. If leveraged correctly it can help employees see an organisation's new strategic values come to life and make them relevant to their day-to-day activities, which is critical if there are major changes afoot. "Employees find themselves being encouraged toward those new behaviours or strategies and being recognised when they behave in the new fashion that's required," said Derek Irvine, chief marketing officer and head of strategic consulting for Globoforce, a global incentive, reward and recognition solution provider. But simply including people in a recognition program won't guarantee success in terms of culture change or performance improvement. Irvine said three critical elements of a great, strategic reward program must be in place to achieve lasting impact: 1. Ensure the reward program has strong senior executive support. Executives should demonstrate and clearly espouse the value sets and strategy that are important to the organisation, and celebrate when they spot these behaviours happening in an appropriate way. 2. The program must be built around the new values and strategy. "Too many recognition programs tend to be built around things that are not of strategic importance," Irvine said. "You have goody-drawer type programs or way-to-go type programs, and they're positive programs, don't get me wrong. It's good to call out when people do good things. The missing element is they ought to not only be called out when they do good things, they ought to be clearly spelling out this is a good thing because it directly contributed to us being able to live out the new values or achieve the new strategy." 3. Mobilise the masses. Irvine said if leaders are going to change the culture or ensure a new strategic initiative is embedded into the organisation, impacting only 10 or 20 percent of the employee base won't do. It requires involving 80 or even 90 percent of the employee base in the recognition program, meaning that same percentage of employees can expect to receive some form of recognition. Irvine said the benefits to this level of performance management can be enormous, as evidenced by Globoforce's work with clients such as Symantec. "We saw an uptick in the level of employee engagement of 14 percent in a nine-month period. Symantec had grown through merger and acquisition that doubled the company size in a very quick period of time. They had all sorts of cultural issues in the company, anxiety and uncertainty about what was going to be happening and how they would build a unified culture. The strategically aligned recognition program was instrumental in helping employees understand what was now important to the organisation, what were the new unifying values they needed to live by, and 'when I behave in alignment with that strategy, and it pays very handsome dividends,'" he said. Irvine said out of 17,500 employees Symantec issued 14,000 award nominations, either peer-to-peer or from a manager, with an average of 800 awards given out every week. That recognition took many forms: a private conversation between manager and employee, substantive employee feedback, nonmonetary notes sent via e-mail but captured in a tracking system so other employees can see what's happening and spread the word in a viral manner. There were also gift cards awarded, but the cards had one facet traditional reward programs often lack the gift of choice. People in France could choose gifts from gourmet wine and pate shops, in India movie tickets to the latest Bollywood flick were major motivators, and many people in the United States and the United Kingdom preferred to patronise do-it-yourself stores such as Home Depot or online shops such as Amazon. Neglecting these three steps when implementing a strategic rewards program won't equal business failure, but Irvine said it can add up to a missed opportunity. "Rather than best-in-class you end up performing average," he explained. "The missed opportunity between best-in-class and average can be billions of dollars in market capitalization, millions of dollars in extra operating costs or loss of operating profits."

Cash vs. Other Rewards

Whether leaders are considering a more traditional reward system—and not many are thanks to the economy—or are exploring more creative ways to motivate employees, many experts believe a pay-for-performance strategy has its place in best-practice reward and recognition methodologies.

"In tough times like this cash is always king, especially now that we've got merit increase budgets that are the lowest they've been in decades," McMullen said. "If business performance is down, which it is in a lot of organisations, incentive payouts won't be as high as they were in years past. Employees need to think creatively in terms of what's going to energise them at work and play that up accordingly.

"There's a clear trend right now in terms of companies getting much more serious about the performance management process and putting more time and energy into calibrating their workforce and differentiating who the top performers are and who the marginal ones are."

Vickers said a company needs to be able to keep its financial options open, especially in a recession or other type of economic or business change, and one way to do that is not to carve incentives and compensation into stone.

"Very often a pay-for-performance type financial instrument could really reap some dividends for the organisation as a whole," he said. "Our research indicates that higher-performing organisations tend to look harder at pay for performance than lower-performing organisations."

Yet, Vickers said some organisations don't deploy pay-for-performance reward systems because it's too hard.

"It's easier to dole out raises across the board thinking, 'I gotta keep everybody happy,'" Wentworth said. "What you're really doing is demotivating your most important people. A lot of times people are afraid too much of a pay disparity as far as raises go will create too much tension in the workplace and things like that, but you've got to document your performance management system and explain why you've done what you've done. It works to the company's benefit to pay the right people."

Retention of key talent is one benefit that can come from an effective, strategic reward system, something that Wentworth said is even more important when an organisation is going through any type of change.

"Turnover tends to increase following a merger or layoffs especially," he explained. "A lot of times during a reduction, there's a target number of headcount that gets reduced, but then there's increased turnover following that from people who are demotivated or have lost confidence in the company. Making sure you retain those people is important. Also, treating your high performers well during difficult times like right now is definitely important because things will turn around, and when they do people will remember how they were treated. Top talents are going to have most and the soonest opportunities to leave if they desire to do so."

Whether the primary motivator is the chance to redeem points for a coveted piece of merchandise, to take a trip or the opportunity to tackle a new challenge, it's important not to forget the recognition element of reward systems. That, said Wentworth, can be an even more important tool with which to reinforce certain behaviours.

"When you ask everyone right to their face they say, show me the money. They want a raise, they want a bonus. But then when you look at research on companies and say now, as a company you use nonmonetary incentives and rewards; are they effective? They say yes, very. Those types of incentives and rewards are effective," Wentworth said. "It's just that employees might not realise it when you're asking them one-on-one would you prefer an award and a handshake from the president or a bonus? It's obvious what they're going to say, but in practical life, that handshake means a lot when it happens."

Derek Irvine, chief marketing officer and head of strategic consulting for Globoforce, agreed.

"People are recognition junkies," he said. "No one can ever get too much. In fact, it's the people who say I don't need recognition who often need it the most, and people can give recognition at little to no cost."

That Incentive Is Not Recognition They are both types of rewards, but there is a difference between incentives and recognition. Think of incentives as the pre- and recognition as the post. Incentives, the I-will-tell-you-in-advance-you-will-receive-this-prize-if-you-do-X reward, motivate certain types of employees such as sales staff better than others, said Derek Irvine, chief marketing officer and head of strategic consulting for Globoforce. Employee recognition, on the other hand, is much more fluid, and while it doesn't formally highlight nitty-gritty tasks in the results-oriented way incentives do, it can lead to more instances where key leaders spot good behaviour and help to set an overall theme, perhaps around values or attitudes in the workplace. "The two operate differently, and they cater to different psychological parts of how an employee responds," he explained. "Sales incentives tend to behave much more like performance pay. It's almost in the compensation part of people's minds. Recognition feeds people's psychic well-being, their psychic income, if you like, a general sense of 'I'm appreciated and valued in the company.'" It can be tough to determine which approach works best in today's diverse workforce. Teams being recognised or incentivized are likely cross-geographical or cross-cultural with members dotted around the globe. Managers can no longer comfortably get to know everyone individually to determine likes and dislikes and purchase rewards accordingly. But Irvine said recognition is one of the most important rewards employees can receive. Five years ago Intuit saw a 13 percent jump in its employee engagement scores in less than 12 months, and he said over the past five years that score has consistently remained up at an elevated level, which keeps employees encouraged and focused on what is important. "An important [motivator] for Intuit is remaining the best place to work," he said. "They wanted to continue that and to create a culture of recognition; they didn't feel theirs was working as well as it could. Their third ambition was to directly drive up employee engagement. Each of those objectives was achieved. In terms of the best place to work, if you know your Fortune 500, Intuit has climbed from being 64th when we started to work with them to 43rd to 33rd. That is a quantifiable culture change."

Let me know what you think of Incentives. Leave your comments below.