At a recent client event we asked for a quick show of hands to respond to the question “Who can think of an incentive plan that worked well?” You could count the number of positive responses with the fingers in one hand – and have 5 to spare.

Whilst striking, I don’t think this comes as a surprise. Time after time organisations embark on a journey to find the incentive(s) that will help deliver improved performance, only to find that there’s little change that comes out of this exercise – or, at worst, that incentives actually had a negative impact on performance. Here’s a nod to Daniel Pink.

This brings into question the effectiveness of incentives and perhaps their very purpose. In our view, there’s still a place for incentives in the reward mix, but the thinking behind incentives needs to change.

There are multiple issues that stand in the way of incentives doing what they’re expected to. People are increasingly motivated by factors other than money. In a knowledge-based economy jobs are less prescriptive and it is difficult to effectively differentiate – and consequently reward – performance under ‘traditional’ objective/appraisal/rating models. Finally, over-complication of incentive schemes and predictability of awards also impact the credibility and integrity of these plans.

What to do then? Here are some suggestions.

• In more fluid performance management frameworks, a re-balancing of incentives towards development and behaviours rather than rigid delivery objectives would be a step in the right direction.
• Introducing more flexibility in the frequency and scale of awards, typically as part of a wider shift towards a recognition-based approach, can improve the motivational effect of incentives by providing closer line of sight between outcomes and reward.
• Building greater accountability for managers and staff can improve the effectiveness of team management and also support the embedding of a performance culture across the organisation. By “accountability” we suggest moving away from the standard enforcement of handing in performance appraisal forms in time and more towards employee ownership of their development and the role of managers in supporting their teams to do this.
• Exploring stronger links between employee engagement outcomes and performance-related pay for managers.
• Re-calibrating the balance between individual and collective awards, especially in environments in which team outcomes are at risk from too much focus on individual performance or, more generally, when there is a desire to foster a stronger team-based culture.

As a closing point, when engaging in a conversation regarding incentives you will perhaps find yourself gravitating towards the question of whether or not to use performance ratings.

You will find that there’s much more that meets the eye when approaching this question. In fact, you are likely to find that this is not even the right question to ask. We are encouraged by seeing indications that organisations are less afraid now to challenge the conventional wisdom around incentives. This is a conversation you should be having too.

And if you need any help, please contact us.

Juan Novoa, Lead Consultant at QCG – October 2019