Why Individual Incentive Programs Don’t Work

Incentive ProgramsBy Steven L. Blue

A few months ago, I was shopping at a large retailer for a Christmas gift for my wife. My daughter and I talked to one sales associate briefly and she showed us an item we were interested in. We looked around at a few more items and then settled in on something other than the first item the sales associate talked to us about. At this point, another sales associate was helping us. We decided to buy the item the second associate showed us and that is when the brawl started. The first associate started an argument with the second associate as to who “owned us” as a customer. Both of them were quite rude and totally oblivious to us. My daughter and I walked away from that encounter offended and quite uncomfortable. In fact, we almost didn’t buy the item because of their behavior. We might even have bought a few more items but we were so bothered by the encounter that we left the store.

These two sales associates are in the dog-eat-dog world of individual incentive compensation. This type of payment and performance structure can create a slippery slope: just look at the Wells Fargo® debacle. As most people know by now, Wells Fargo® created two million ghost customer accounts just so they could make their incentive numbers. When hitting goal numbers is prioritized above all else, people do dumb things, like defrauding customers with accounts they didn’t ask for, or, in my case, offending customers buying Christmas gifts.

The Problem with Individual Incentives

Individual incentive programs drive employees to think only of their personal performance, which is never good for the organization as a whole. In fact, the only incentive programs I like are ones that incentivize teams to work together. In the case of my shopping experience, imagine how much better the situation would have been if those two sales associates worked together to get us to buy both of the items we looked at? If those two were incentivized together it would have been a much better experience for all involved.

If you incentivize your staff for individual results don’t be surprised when they lose sight of the good of the company. Don’t make the mistake of thinking individual results add up to big results for the company. They don’t. Synergistic results add up to big results. The only way to get synergistic results is in teams.

Four Ways Incentive Programs Will Work

1. Eliminate all individual incentives. If you are using incentives because base pay is not up to market value, bring base pay up to market before you do this.

2. Incentivize the entire company on the only metric that matters: Achieving the profit budget. The concept is everyone gets the goodies if the company hits the number but no one gets the goodies if it doesn’t.

3. Once you’ve made these changes, it will make a strong statement. Be sure to back the change up with an employee-wide meeting to explain why the changes will help, and outline the new behaviors you now expect.

4. Don’t give in to giving individual incentives to your rainmakers. When the rainmakers have the same incentive program as everyone else, it will encourage them to teach their co-workers how to make rain. Be sure to communicate this goal to these strong individuals.

As companies put together their goals and benchmarks for this New Year, consider implementing group incentive programs. You’ll have a more productive, efficient and invested team in 2017.