Lately the incentives debate is really heating up. Some research is showing that employees respond best to intrinsic rewards like better healthcare, donations to charity, promotions, compliments or other good-will work by the company. Other articles claim that a company that maintains a strong ethical business foundation will encourage strong performance.
On the other side of the fence are researchers and businesses that feel monetary incentives are the best way to encourage strong performance and maintain loyalty to a company. This opinion is one shared by my present management and company. While each group tries to collect even more data, I suspect the answer will be somewhere in-between.
Incentives like every part of a business strategy need to be designed with a specific purpose in mind and a strong understanding of the people, environment and processes involved. Would you assign individual incentives to work that requires active participation by a full team? It might work, but I think you will end up with a kitchen full of cooks.
I would argue that there are at least four distinct situations that require unique incentives. No incentive will be effective for all situations.
1) Sales of High Value, High Margin, Flexible Products or Services in a Competitive Environment - When front-line sales people have to work very hard in bursts to reach targets which provide the company with a high margin of profit, some-sort of profit sharing is more fair. Intrinsic rewards may work if they are clearly supported by the margin the company makes. More consistent product-sales environments, may benefit from a more operational incentive system.
2) Process and Operation roles where Time, Consistency and Quality are vital - With key operations roles, regular support, recognition and intrinsic rewards seem more effective. There isn't an extreme burst of energy, challenging negotiation or complex network. Operations people have to do what they do well and consistently, and should be recognized for that.
3) Variable, Consultative or otherwise hard-to-quantify roles where Satisfaction is key - accounting, legal, HR and other corporate roles are often difficult to quantify in the way that sales and operations can be. Evaluating an HR manager on retention may ignore other factors that are motivating people to leave. Thus rewards linked to the overall performance of the company with a way to recognize and promote people who stand-out likely work better.
4) Manual, labor intensive roles that require acquired skills and experience - maintenance, construction, manufacturing and many other sectors have workers who need to be really good at physically doing something. For these professions, it is likely best to pay them based on how often and how intensively they need to do their work. Likewise, how dangerous that work is should influence the pay. Incentives can come in recognition of gaining new levels of certification, and for accomplishing especially challenging projects.
To some extent these incentive schemes can overlap or be interchanged depending on the size of the organization and the type of role. Here I have just described four different models. How your business works and the objectives of your incentives will determine what is made.
I want to stress that incentives alone will never guarantee the success of your organization. You must build a company that people can believe in, that behaves ethically and fairly and that supports the people working there. By default your company should provide intrinsic rewards to every staff who works there. Additional incentives, rewards or perks should be given out with a clear objective in mind.
