Feature Article - May/June 2010

Measure for Measure

Maximize Value Form Your Incentive Program

By Rick Dandes

But how do you prove that an incentive-award program is effective? How can you ensure that the program will not end up costing you more than it's worth? The answer, explained Todd Hanson, president and founder of Appleton, Wis.-based Catalyst Performance Group, a company that specializes in performance management, is to make sure that you have a properly planned and structured campaign that accounts for not only what you'll gain from the program, but also what you'll need to spend to implement the program.

"If you can clearly define your return on investment, such as delineating costs, results and benefits, then you will have successfully accomplished a major portion of your plan," he said.

In some cases, companies are tossing out conventional thinking about the need for ROI on incentive program initiatives and focusing on how to advance their overall business strategy. Certainly, improved morale, increased level of competition and overall employee or customer goodwill all are direct benefits of any incentive award program.

Develop Clear Objectives

Effective incentive programs begin with the design of the incentive plan, and making sure that the designer and managers of the program have clear objectives.

Rodger Stotz, chief research officer for The Incentive Research Foundation (IRF), said that having clear objectives is the first step in designing an effective incentive-award program.

"Make sure you're looking at what you are trying to achieve, and then go about monitoring it and measuring it as you go along," he said.

Secondly, Stotz said, "When you talk about ROI, understand that the concept itself has evolved. There are financial as well non-financial returns. So, as you are looking at a program, it's important to understand both the financial implications and the non-financial benefits."

For example, some of the areas impacted in the arena of non-cash awards are engagement of suppliers, employees, channels and consumers. This engagement—the ability to have individuals at each level of the value chain committed to the organization and its products and services—is something that more and more people are measuring. It is seen more as a non-financial measure, but it's still critical.

Jennifer Kallery, vice president of marketing at market research firm Maritz Inc., based in Fenton, Mo., agrees that looking at both behavioral and attitudinal measures to evaluate effectiveness can be almost as important as the financial ROI.

"In terms of behaviors," she said, "identifying key drivers or activities that lead to improved performance and measuring changes in these behaviors before and after incentive solutions are implemented is critical. Linking these behaviors to financial outcomes like increased sales or profitability to support building return on investment models provides an even stronger case.

"When we look at attitudinal measures," Kallery said, "it's important to consider program participant's pre- and post-program perspectives. In this way, we offer participants the opportunity to provide input into program design to ensure maximum effectiveness; after that, you measure how motivating they found the program to be after it runs."