An incentive program is a formal scheme used to promote or encourage specific
actions or behavior by a specific group of people during a defined period of
time. Incentive programs are particularly used in business management
to motivate employees and in sales to attract and retain customers. Scientific
literature also refers to this concept as pay for performance.
Types = Employee =
Employee incentive programs are programs used to increase overall employee
performance. While employees tend to approve of incentive programs, only 27%
of companies have such programs in place. Employee programs are often used
to reduce turnover, boost morale and loyalty, improve employee wellness,
increase retention, and drive daily employee performance.
= Consumer = Consumer incentive programs are programs
targeting the customers of an organization. Increases in a company’s
customer retention rate as low as 5% tend to increase profits by 25%-125%.
Consumer programs are becoming more widely used as more companies realize
that existing customers cost less to reach, cost less to sell, are less
vulnerable to attacks from the competition, and buy more over the long
term. = Points programs =
Points-based incentive programs are a type of program where participants
collect and redeem points for rewards. Points programs may be used to
incentivize both employees or consumers. Depending on the program type and the
organizational objectives, points can be awarded on a number of criteria
including positive employee behavior, the demonstration of organizational
values, repeat customer purchases, the sale of new products, increased overall
sales, or even the use of proper safety precautions. In addition to point
awarding, the levels at which points can be redeemed can be customized by the
organization. Points programs are a way for organizations to motivate behavior
over time while improving the organizations’ overall performance.
Loyalty programs are a frequently used points-based incentive program in which
customers that exhibit a certain behavior are rewarded with points,
reinforcing that behavior. = Sales =
These programs are primarily used to drive sales, reduce sales costs,
increase profitability, develop new territory, and enhance margins. Sales
incentive programs have the most direct relationship to outcomes.
A sales incentive plan is a business tool used to motivate and compensate a
sales professional or sales agent to meet goals or metrics over a specific
period of time, usually broken into a plan for a fiscal quarter or fiscal
year. An SIP is very similar to a commission plan; however, an SIP can
incorporate sales metrics other than goods sold(or value of goods sold),
which is traditionally how a commission plan is derived. Sales metrics used in
an SIP are typically in the form of sales quotas, new business opportunities
and/or management by objectives independent action of the sales
professional and is usually used in conjunction with a base salary.
SIPs are used to incentivize sales professionals where total sales are not
a precise measure of sales productivity. This is usually due to the complexity or
length of the sales process or where a sale is completed not by an individual
but by a team of people, each contributing unique skills to the sales
process. SIPs are used to encourage and compensate each member of the sales team
as they contribute to the team's ability to sell. It is not uncommon for the
members of such teams to be located in different physical locations and for the
product introduction to happen in one location and the purchase of such a
product to occur in another location. Dealer
Dealer incentive programs are used to improve performance for dealer,
resellers, channel partners and other types of brokers using sales incentive
programs. These programs help companies capture market share, launch new
products, reduce cost of sales and provide momentum for new launches by
incentivizing an external party to drive additional sales.
= Online programs = Incentive programs have gained
significant traction online; 43% of companies using incentive programs use
the Internet as a channel. According to the Online Incentive Council, since
their emergence in 1996, the number of online incentive programs has almost
doubled in size every year. At present, nearly every traditional incentive
company offers an online component in programs including employee motivation
and recognition, sales performance, channel programs, and consumer
promotions. Companies that run their programs online experience efficient
communication, reporting, and awards fulfillment. Online incentive programs
pose an attractive alternative to traditional offline programs since
online programs save money and time and allow organizations to have greater
control. Incentive websites
A website which pays people in gifts or cash for completing provided offers and
referring other people and frequently use an [Affiliate marketing|affiliate]
model. These sites are typically sponsored by companies in order to
advertise their products. The sites are in turn paid for advertising and
attracting new clients. By collecting user data that the user submits,
companies can target certain areas of clientele and offer products
accordingly. In most cases, incentive sites grant
rewards for completing requirements. This usually requires viewing
advertisements, signing up for a site, entering a PIN code, purchasing trial
products or full products or completing surveys. This in turn rewards the
specified user in cash, points, check, or its equivalent. Alternately, an offer
may entail referring website visitors by inviting them to a target site under a
referral link. Referrers in turn are either paid for every person they
invited or as percentage of resulting revenue.
Monetary rewards Selecting the appropriate rewards is
vital to any program's success. The goal in choosing rewards is to select items
that will spark the participant’s interest or feelings, and support the
program’s objectives. Effective rewards will both motivate short-term behavior
and provide motivation over time. There are several types of rewards.
= Cash = While incentive program participants
often state that they prefer cash to non-cash rewards, research has shown
that cash is a poor motivator due to its lack of "trophy value." In a recent
study conducted by the Center for Concept Development, three of five
respondents agree that a cash payment is perceived to be part of an employee’s
total compensation package and not as part of an incentive program.
Additionally, cash is quickly forgotten as many participants tend to spend it on
everyday items or use it to pay bills. Given that most people do not generally
talk about cash awards, cash programs do little to generate the interest required
to create an effective incentive program.
Research shows that pay for performance often gives only short term gains,
frequently gives no gains at all, and may give reduced performance.
= Non-cash rewards = Merchandise and other non-cash rewards
are more often perceived as separate from compensation. Accordingly, non-cash
rewards tend to stand out as rewards for performance, which enhances their
long-term effect. Branded merchandise and other non-cash rewards have high
trophy value, bringing greater recognition to the recipient at the time
of the award and possessing a long-term lasting effect that can result in
increased engagement in the organizations goals.
= Gift cards/certificates = Gift cards/certificates are prepaid
retail cards or certificates which are redeemed at a later time at checkout. In
general, they are available in two types: cards which carry a major credit
card brand, commonly referred to as universal gift cards, and are redeemable
at all merchants accepting the credit card brand; and retailer-specific cards,
issued by well-known merchants, redeemable only through the issuing
retailer. In the 2005 Incentive Federation Study of Motivation and
Incentive Applications, gift cards were ranked as the most frequently used type
of corporate reward. = Merchandise =
Merchandise rewards can range anywhere from small branded key chains to
high-end electronics. In a 2005 study conducted by the Center for Concept
Development, 73% of respondents agreed that more stimulating, memorable
incentive programs can be built around merchandise as opposed to cash rewards.
= Travel = Travel rewards can best be defined as a
face-to-face event designed to motivate, either directly or indirectly. In a 2005
study conducted by the Center for Concept Development, 51% of respondents
perceived that travel is remembered longer than other incentive rewards.
= Experiential = Experiential rewards provide program
participants with an experience. This form of reward gives organizations the
ability to offer their employees and customers interesting experiences as
incentives. Examples might include a seaplane flight and lunch, a two hour
horse ride on the beach, a day of sailing for two, a chance to meet a star
athlete, or the use of a party planner for an occasion of the recipient’s
choice. Experiential rewards allow participants to share their experiences
with others and reinforce the reward and the behavior that led to the giving of
the reward. Non-monetary rewards
Non-monetary incentives are used to reward participants for excellent
behavior through opportunities. Non-monetary incentives may include
flexible work hours, payroll or premium contributions, training, health savings
or reimbursement accounts, or even paid sabbaticals. If it comes to
environmental behavior, often labeling and recognition certificates are used.
This may include stickers, T-shirts with banner logos, etc.
See also Incentive
Motivation Cobra effect
Perverse incentive Goal-setting theory
Travel incentive Loyalty program
Advertising Checking Bureau Loyalty marketing
Employee development Organization development
Organizational performance Share Incentive Plan
Xactly Corp Synygy
References