When asked to discuss how best to measure the effectiveness of an incentive program, I have a flashback to that Abbott & Costello routine, “Who’s on First.” If we’re not clear, we’ll go round and round in an endless chase meaning one thing but communicating another. We should start with a look at what makes a program effective. Further, we need to know why we feel it necessary to measure an incentive program in the first place. And that begs the question: “Why use incentives at all?”
It's all in the words
First, let’s agree on a few operational definitions of common terms often confused with one another. Motivation and incentive are two that are often interlaced, resulting in a conversation that misses the target.
Motivation is that drive, that fire that comes from within. It can’t be imposed upon you. You simply cannot motivate someone to do something. Eisenhower said it best: “Motivation is the art of getting someone to do what you want them to do because they want to do it.”
Incentive, by contrast, is an external influencer. It’s an initiative or designed set of offers that intends to persuade you to act.
The intrinsic/extrinsic debate has been going on for a while, but a balanced use of both provides an inarguable ROI for efforts to increase employee engagement. Consider:
- Towers Perrin, Gallup, Corporate Leadership Council and others have released research supporting the notion that recognition directly correlates to higher engagement rates.
- Increased employee engagement is related to better job performance and aligned business values.
- Organizations actively trying to increase employee engagement through recognition and incentive outperform their competitors in several financial measures including Earnings Per Share.
- Robust recognition programs have the potential to increase engagement and job performance with a far lower cost investment than compensationbased initiatives.
Bill Catlette and Richard Hadden’s book, “Contented Cows Give Better Milk,” compared results of companies considered to be “people-driven” employers of choice with a comparable group of Fortune 500 firms. The Employers of Choice had an average of 33% less revenue as their counterparts at the beginning of their 10-year study (one year included a recession). The Employers of Choice outperformed the Fortune 500 counterparts 4 to 1 in revenues, increasing net income 202% vs. 139%. These companies also added 79,000 jobs, while their counterparts lost 61,000.
Organizations with motivated and committed workers - ones who are included in incentive programs that are designed to boost recognition, engagement and performance - continue to achieve growth while others stagnate. This has been especially true during economic downturns.
Seven indisputable facts
These facts may be argued at the edges, but we can all find truth within their core:
- An engaged worker is generally a safer worker than those who are disengaged.
- An appreciated employee is more likely to offer discretionary effort.
- Positive reinforcement is more effective than fear, discipline and threats.
- People are “hard-wired” to prefer earning over handouts.
- We desire autonomy, yearn for mastery and require purpose.
- We have an aversion to any efforts that dampen our intrinsic drive for autonomy, mastery and purpose.
- Employees are better qualified than management to handle and embrace change.
When you look at safety and the costs needed to improve it, we’re more comfortable with tangible issues that can be quantified. Take fleet safety, for instance. A carrier client explains: “If we want to install a $1,000 backing collision system in our fleet of 3,000 trucks, at a total cost of $3 million, we need to show a break-even payback in the 6 to 8 month range. Of course, we would want that payback to be ongoing as well.” Other companies look for safety technology investments to payback to break-even within one year. The payback, of course, is measured in dollars saved from accident reduction projections. This company paid out over $6.4 million in claims in the previous year, with over half coming from backing collisions. It’s easy to see the payback reasoning for this investment in technology.
What tends to be a bit more of a struggle is to make a case for investment into the actual drivers…the people that operate these vehicles. I asked my client to tell me which of two scenarios worry him more as he drives his sedan on the freeway each morning:
- The car in the next lane will suddenly lose a wheel and collide into him
- The car next to him has a driver on his cell phone, while drinking a cup of coffee
Clearly, the second scenario is the more likely to occur, giving rise to an argument FOR the investment in safety technology AND driver engagement. The more we engineer technical solutions and improvements, the more we rely on them…and the less we stay engaged in the actual operation of the vehicle. (I’ve got one of those cars with the back-up camera in my dash. I have become less vigilant in walking around my car before I hop in, and in turning my head around to look through the back window.)
Technology offers a variety of ways to provide early warning, vital information and automatic override systems. But we are decades away from the kind of engineering that would require minimal engagement from the human operator. We simply cannot engineer ourselves into a safer workplace without developing our workers into systems thinkers at the same time. Any CEO would be wise to investigate a recent Pacific Institute study which pegs the cost of a single injury at $183,000 and $2.7 million per fatality when you factor in medical, emergency, lost productivity and quality of life losses. The costs of doing nothing are becoming prohibitive.
Returns on engagement
Towers Perrin performed a workplace study in 2008 looking at more than 90,000 workers worldwide. The surveys came to the conclusion that the number-one driver of discretionary effort is “senior management’s sincere interest in employee well-being.” In support of this conclusion, San Francisco-based GPTWI, which produces for Fortune Magazine the annual “100 Best Places to Work” list, calls this the trust factor. They point to the quality of three interconnected relationships in the Best Places:
- The relationship between employees and management
- The relationship between employees and their jobs and or company
- The relationship between employees and other employees
- Not surprisingly, each year’s Fortune 100 Best outperform the S&P 500 in better earnings per share, sales, customer retention, employee turnover and much more.
Over the last several years, a variety of methods have been used to measure the effectiveness of an organization’s overall safety program. Most now agree that the single measurement by numbers of incidents is pretty pointless, since it does nothing to diagnose improvement or degradation. More recently, the thinking evolved to the notion of audits. This concept has also been abandoned as a stand-alone measure, because study after study shows that there is little correlation to successful audit scores and incident rates.
Today, many companies measure effectiveness of incentive elements along with other components of a comprehensive program with a scorecard approach. Your scorecard should include a minimum of these criteria:
- Accident record
- Audit score
- Involvement rates in discretionary activities (near-miss reports, hazard inspection, completed action tasks, etc)
- Completion rates in learning/training system