What are good incentives, and how do you build them?

Incentives can be powerful drivers of change, but also have the potential to be ineffective, drive completely the wrong behaviours or be de-motivating.

I think we've all seen the process for ineffective incentives:

1. Think up cool incentive!

2. Launch to staff amid fanfare and excitement

3. Discover you don’t have a way to measure or report on it

4. Create additional work for the team recording extra data, and then more work for someone else reporting manually

5. Realise….

6. Incentive is too easy, doesn’t change behaviour, get worried about financial impact, change target, staff demotivated as goalposts move

7. Incentive is too difficult, doesn’t change behaviour, change target, staff confusedIncentive works for some people/situations, but many where it doesn’t, add extra targets to try and make it work, staff demotivated

8. Incentive drives the wrong behaviour and service/sales/quality dropStaff have figured out how to game the system, doesn’t change behaviour, cancel incentive, staff demotivated

9. Teams and leaders don’t know where they are against targets day-to-day, doesn’t change behaviour

10. Incentive either gets cancelled early, or forgotten about out after a couple of months with no measurable impact

So, how do you design effective incentives?

1. What is the issue you’re trying to solve? Be specific, exactly what behaviour are you trying to change, what outcomes are you looking for?

2. Develop incentive carefully, likely to be a blend of different metrics to ensure the correct behaviour is incentivised

3. Understand how you’ll measure it. Incentives need data for monitoring, ideally existing data that doesn’t create additional work, build automated reporting so it’s easy for leaders to monitor and teams to understand where they are against targets in real-time

4. Check if there are there any unintended consequences? Are you potentially incentivising the wrong behaviour? If an incentive is too simple, such as ‘Increase project win-rate by 10%’ do you risk more projects subsequently failing because they have been under-quoted just to get an order?

5. Does it work at the borders? Are there situations where it breaks down? Increasing revenue per customer may be much easier for very small customers than large value customers

6. Is there potential for deliberate gaming? We hope staff won’t be dishonest, but many will try to make their lives easier. Could they cherry-pick jobs where they know the target is easier to hit, with more difficult jobs ending up with poor service?

7. Are the incentives fair, equitable and transparent? – People will talk so it’s easier to be transparent from the start. It’s ok for to have different incentives/targets for different people, but there should be same opportunity for reward if incentives will be motivating for all

8. Model and test. See what the outcomes would be for different inputs, think creatively about the less obvious aspects of an incentive

9. Launch and monitor. Make sure leaders and staff all have access to high quality reporting so they can see progress regularly. Staff seeing progress towards a goal every day keeps the incentive front of mind and is far more motivating. Leaders can push the right messaging to their teams at the right time.

10. At the end of the incentive review effectiveness and learn lessons to apply next time.

This isn’t intended to make incentives seem difficult and more trouble than they are worth, it is intended however to help avoid opportunities being wasted on ill-conceived incentives. Remember that you only have one shot at changing a behaviour through an incentive, you can’t just keep trying different things and expect staff to take them seriously.

Obviously at the heart of good incentives is good data and reporting, please do get in touch if you’d like to make your next incentives more effective