Incenting the right behavior can be a matter of life and death!

I am a firm believer that employee incentive programs are key to optimizing a workforce’s goal based performance, but an employee incentive program that has not been thought through can be worse than none at all. In other words, you have to make sure you are incenting the correct behavior with your rewards program. One of the most blatant examples of incentive programs promoting the wrong behavior is related to the 18th century British government’s policy for shipping convicted felons to Australia.



In 1787, the incentive program paid captains for each prisoner placed on board the ship in Great Britain. This predictably created overcrowded conditions with total disregard for prisoner safety. It was so bad that on one voyage, more than a 33% of the males died and the rest arrived in Australia beaten, starved, and sick. Once stories like this came to light, there was an outcry from the church as well as the general public saying something had to change. Finally, an economist suggested paying captains for each prisoner that walked off the ship alive and well in Australia, as opposed to each prisoner that boarded the ship in Great Britain. The new incentive system was implemented in 1793 and the survival rate immediately skyrocketed to 99%!



Obviously, this is an extreme example, but you get the point. Goal based incentive programs promote desired behavior and desired outcomes.



In addition to performing the proper due diligence before initiating the employee incentive program, you must also make sure to keep monitoring the program after it goes live. Even incentive programs that are initially successful can devolve into incenting the wrong behavior or lose effectiveness altogether over time left to run unmonitored. The economy and/or business model may change or employees may find ways to game the program, all of which can take your program where you don’t want it to go.



In order to avoid this occurring either initially or over time, make sure you follow these positive employee incentive program guidelines:



1. Determine EXACTLY what outcome you want from the program and its participants – An example is a mortgage origination environment, where more loan closings are the desired outcome.



2. Determine the revenue and/or cost savings that are generated when the outcome occurs – Let’s say each mortgage generates 5% of the mortgage amount in revenue.



3. Identify the employee behavior(s) that creates the incrementally better outcome – Loan Processors calling customers within 24 hours of documents being requested. The quick connection with the customer makes them know the wheels are in motion and decreases the odds they will continue shopping for rates, etc. As a result, overall customer withdrawal rates drop and the number of apps per closed loans improves. Thus improving cost per closed loan and increasing the revenue associated with a closed loan.



4. Create an employee incentive that is tied directly to the behaviors that drive the outcome and does not pay more than the associated cost savings and/or incremental revenue (the more unique the employee incentive the better) – Loan Processors earn a spin on the "Prize Wheel" for each time they perform the behavior. Prizes range from a free token in in the vending machine to gift certificate to dinner.



5. Once the employee incentive program is in place, observe the results and study its profitability/ROI – Upon further review, you realize that the withdrawal rate for certain processers drops significantly, while other stays the same or increases.



6. If something is out of whack, adjust the incentive amount or the employee behavior you are incenting – You determine that the most successful processors have a checklist they go over with the borrower at the time of the call and follow-up with an e-mail. Thus, you change the incentive to call the borrower within 24 hours, complete the checklist and send a follow-up e-mail.



7. Give it no more than six months and then start all over at step #1.



LoyalNation specializes in completing the fact-finding analysis and business process study to design employee rewards and incentive programs that make sense by rewarding the behaviors that make you money.



A lot of times managers are amazed when employees are not doing what they should. Whenever you come across this make sure you ask yourself, are they just doing what they have been incented (either directly or indirectly) to do? I mean, I am pretty sure the British ship captains were not murderers; they were just following the incentives!