Guest Column - May/June 2010

The Case for Incentives in the New Normal

By Jennifer Kallery

Emerging from their recession-storm shelters of 2009, businesses quickly discovered a new "normal"—a market landscape scattered with weakened competition and new customers eager for new solutions, balanced with intensified attention to productivity, accountability and value. Companies need to think about long-term strategies instead of 60-day plans used during the recession. Businesses should jump through narrowing windows of opportunity now, before competition beats them to it.

Growth is a new focus of senior executives, but the corporate purse strings remain tied up for many companies still chained to the survival practices employed during the "Great Recession."

How can a company grow quickly after reducing staff and cutting people-related expenses like recognition and incentives? The answer isn't in hiring new people; it's focusing on the people already in the office. It's time to make the case for investing in performance improvement programs to drive sales, improve productivity, increase revenue and grow your organization.

Build the Case

Before you can defend your program spend, you first need to define it. In the era of the new normal, justify your performance-program investment with hard numbers and alignment around company goals. Start acclimating yourself to the new market landscape. Review the competition, the customers and the factors that influence the industry. Then take a hard look in the mirror. Know the current financial state of the company. List the organization's weaknesses and strengths. Talk with current salespeople to begin measuring engagement. Know as much as you can about whom and what can affect the business and the incentive program.

After you survey the company and the market, work with organizational leaders to put a stake in the ground for where you want to be in the short and long term. Define what success looks like, and align the incentive program with the greater company goals. Show how the program will improve sales performances, spur organic growth and help achieve organizational success. It's difficult to cut an expense when it's directly tied to profits.

To help make the connection, create a model to evaluate the financial impact of the program on corporate success. A basic formula for determining return on investment combines the joint product of incremental revenue, profit margin and percent attributed to the program. Deduct program costs from this multiplied number and divide the overall sum by the program costs. In the new normal, you will need these hard numbers to prove the value of your incentive program.

Once you know where you are and where you want to go, you can develop a plan. Include specific, measurable benchmarks to track progress. For example, set a goal for year-over-year growth and check movement toward it. Use the tracking data to adjust course, if needed, and to prove success to leadership when you reach a goal.

A subset to plan development is to thoughtfully segment your participants. To optimize the investment, an incentive program should target those who have the most potential for improvement. In other words, you must segment incentive program participants just as you do your customers.

  • Top performers: Continue rewarding the top performers in your company for recognition and retention—these people are your best assets. Employee recognition is key to keeping and motivating the best talent.
  • Trainees: Identify those performers who need additional training, or who aren't the right fit. These are typically your bottom 20 percent—people who are contributing very little to company growth. When challenged and coached appropriately, many of these individuals can reach the performance levels of an "average" employee.
  • "Average" employees: Contrary to popular belief, companies should focus on the middle 60 percent. This is where managers can have the most impact and influence behavior. In fact, this group of "average" performers has the most opportunity for growth. A performance-based incentive program can encourage participants to exceed personal and company goals, and align the incentive with the value of meeting those goals.

When each segment is leveraged to its fullest potential, the "people investment" of a performance improvement program becomes much clearer and easier to justify.