Reasons Why Employee Incentives Drive the Behavior You Want

Your sales compensation plan is the main driver of performance in successful organizations. Learn how to ensure your incentives drive the right sales behaviors.

13 min read

Long gone are the days where employee incentives are reserved for only those working in sales. Companies taking the work performance of their teams to the next level are using incentive compensation to recognize employees across all departments, with savvy executives knowing that a happy staff is an engaged staff, and an engaged staff translates to more satisfied customers.

And before you dismiss such an idea, thinking incentives don’t fit your organization, give it a chance. Employee incentives really can make an impact in any industry imaginable, whether it’s through rewarding people for years of service, recognizing staff for their productivity, or just giving out ‘atta-boys’ for a job well done. Even verticals as different as Life Sciences and Hospitality are utilizing incentives to drive the behavior they want from their staff.

That said, some business leaders will still refuse to understand the importance of employee incentives. Those who embrace them, though, are moving forward with a powerful lever to help drive the behavior they want from their employees.

A Quick Example

Take a straightforward example like tackling a goal of building top line revenue growth. With an objective so broad that it can be attacked a number of different ways, where do you even begin? You can start by thinking about how employee incentives will help align sales rep behavior with the specific revenue goals laid out by executive leadership.

If employees are motivated to achieve those targets, there’s a good chance they will, and as they do, will move you closer to your objective. To be successful, though, you need to make sure that your employees are properly educated about how the incentive plan works and how it benefits them.

So, once you’ve adopted a strategy, you’ll need to communicate it appropriately. Hold a meeting to describe, step by step, exactly what incentives are available and what each employee can do to maximize their compensation. In the end, if you want them to build a client base and increase your business, employees must know what they’re working towards, and how they can get there.

Ways Employee Incentives Drive the Behavior you Want

Sure, incentives might look good on paper, but why are they so impactful? What is it underneath the surface that translates into increased performance?

1. Employee Incentives Make People Feel Valued

It’s no secret that the war for talent is a competitive one—and more often than not, the companies that come out on top have mastered how to make their employees feel valued and appreciated. They are the true winners in this case because employees who feel more valued and satisfied at work are less likely to leave, allowing you to preserve top talent while shielding you from battling other companies for more.

According to Harvard Business Review, turnover can be one of the most expensive problems at a company; research on the costs of replacing an employee range from 20% of their salary to 150%, depending on how you calculate it. So, a 3% change can represent tens of millions of dollars, depending on the scale of the company.

Enter employee incentives—the tool you must possess if you want to be able to do everything in your power to keep those top performers on board, and ensure that they understand just how valued they are. If anything, just start small. Maybe that means choosing an employee of the month and giving them a gift certificate.

It can be that simple, and if you’ve never rewarded employees in such a matter, you’re almost guaranteed to see a change in working habits, morale, and results.

2. Employee Incentives Contribute to Building a Thriving Culture

Every company sets up their employee incentives differently, but one of the most important aspects of an incentive plan is recognition. At Xactly, we recognize individuals for their outstanding performance on a quarterly basis at company-wide all hands meetings, with an announcement of the specific employee achievement accompanied by a small gift card as their reward.

While this might be a small incentive from a monetary standpoint, it makes a big impact. Learn more about the power of recognition through our post of ideas for improving employee morale.

3. Employee Incentives Create Meaning

When tasked with finding out why employee performance was in decline, Harvard Business School professor Teresa Amabile and independent researcher Steven Kramer collected electronic diary entries from 238 employees in seven different companies for research.

Of all the factors that resulted in employee performance, the most important one was making progress in meaningful work. To create meaning and properly manage employee performance, dig deep and discover what it is that truly matters to employees. Once you’re certain you’ve found it, create incentive programs around it, and establish a connection between the employee’s work and the incentives you’re offering.

4. Employee Incentives Lead to Recognition, Which Boosts Performance

To effectively recognize employee performance in your own workforce, be sure to measure your people objectively, and provide them with regular feedback. Monitor performance data, and reward top performing reps by recognizing them in person, on a leaderboard, or as mentioned, in a company-wide email blast.

The last thing you want to do is recognize employees who aren’t deserving. In The Carrot Principle, authors Adrian Gostick and Chester Elton discuss a study they did of employee performance over a ten-year period. Their research showed that employee performance was highest when they received performance incentives like praise or accolades. These incentives inspired performance significantly better than even money.

5. Employee Incentives Provide Autonomy

Finding incentives that encourage individual employee performance is the key to creating meaningful incentive programs. The best thing you can do is set employee incentives that guide behavior, and monitor your programs for efficacy and engagement.

Edward L. Deci and Richard M. Ryan conducted several studies to evaluate how employee performance fared when employees felt controlled as opposed to self-directed. They found that the group that was allowed to act based on their own opinions persisted significantly longer in a puzzle-solving activity than did those who were told how to solve the puzzle, or were pressured to solve it in a specific manner.

How to Weave Employee Incentives into your Business 

Now that you better understand why employee incentives are so valuable, let’s take a look at a few methods for seamlessly incorporating them into your organization.

1. Utilize MBO Programs

MBO programs haven’t yet gained the popularity they deserve, mainly because many people haven’t been educated on best practices, and thus, don’t experience the maximum benefits of a Management By Objectives program when one is put into place.

One of the most important aspects of using MBO bonuses for all employees is to make both the process and goals simple and understandable. If you add in twenty targets, you’re setting up your employees for failure because it can’t possibly be clear which projects should take priority.

Alternatively, three to five projects or metrics will do the trick. This way you are able to track all of your employees’ progress and reward employees when they meet the goals you’ve set together.

2. Provide Tailor-Made Incentives

You know the difference it makes when you have a perfectly tailored pair of pants compared to when you buy off the rack; with the former, you feel like a million bucks. Those pants are made for you, and you only, doing wonders for your confidence. The tailor fully understood how to create the best wearing experience for you personally.

That’s the difference it makes when you tailor your incentives to fit your individual employees’ tastes, motivations, and interests rather than using one-size-fits-all incentives to recognize employee performance. If you want to reward employees in a meaningful way then the reward must inspire them on a personal level. This is where employers make major mistakes when it comes to using incentive compensation to recognize employee performance.

The first mistake is crafting incentives too similar for high and low performers. In such a scenario, that top performer is going to get frustrated and move on to a company where the employee incentives more closely reflect his or her hard work. Worse, you’ll have a low performer who thinks they’re knocking it out of the park for what is really sub-par performance.

The second major mistake is assuming that money is the greatest motivator of all. Sure, everyone likes a bonus check, and the cash bonus is an important part of recognizing employee performance, but it’s not the only way. A non-cash reward of equal or lesser value can do the trick, as long as it aligns to your employee’s interest, as mentioned before. Try courtside tickets for the basketball fanatic, or travel vouchers for your team member who always has wanderlust.

3. Consider Company-Wide SPIFs

The sales team at your organization likely uses SPIFs (special performance incentive funds) at least once a quarter to inspire reps to move a specific product, or to meet a specific goal in a set time frame. So every once in a while, you can recognize performance of non-sales employees with a SPIF.

For example, if you have a big event or conference coming up and you want to drive attendance, introduce a SPIF that rewards employees who get others to register. It’s a fun and effective way to get the whole company working towards a common goal.

The overall goal of employee incentives is to encourage your workforce’s investment in the job they’re doing, and inspiring them to do it better. Productivity and profits will both increase, leaving your business with nowhere to go but up.

If you’re interested in learning how Xactly’s MBO product can help you build a better-aligned team with a motivated, high-performance culture, check out our employee performance management software, Xactly Objectives™ today.