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Mad About Incentives Meets Science Behind Incentives:
October 07, 2009
By Ley Borlo and Josh Klapow
In their fourth collaborative article, Incentive columnists Ley Borlo (Mad About Incentives) and Joshua Klapow (Science Behind Incentives) look at figuring out the right value of an incentive reward from the perspectives of general industry dictum and the behavioral sciences.
Mad About Incentives: How do you determine the right value of an incentive?
I have had clients ask me this question or variations of it for years. It was a fun one to answer because it allowed us to expound on everything we thought we knew about what it took to motivate people. And I haven’t met one salesperson in this industry that didn’t see himself or herself as an expert. For the industry disciples of the behavior model, that client question was answered with a degree of expertise, followed by a lengthy question and answer session. For others it was answered with pat formulas that allowed for mathematical answers given with much authority.
When the question is answered from the perspective of the behavior model it allows for a good dialog to understand the participants and their needs. When answered with the “facts” that surrounded mathematical formulas, it allowed for variations in budgets that could be dramatic—variations that were all too often on the low side. Those kinds of low-funded programs never produced results because they never had enough value in the award to motivate the performance change the client sought. That is still one of the top three reasons why incentive programs fail (two-thirds of all incentive programs are not successful or actually produce negative results).
In truth, I have never seen any proven mathematical formula that answers the question. What I was taught many years ago and still see repeated today is to use 3 to 5 percent of a person’s income during the program period as the value of the award if it was a long-running program (6-12 months), or 12 to 15 percent of income during the program period if it was a short one (1-3 months). I have never found where that formula came from. I would love to know if it has any basis in science, but somehow I doubt it. I do know it was a good average number from which to begin, but in over 35 years I have never seen any scientific evidence to support it.
This question does go to the heart of any well-planned and implemented incentive program, but too often it is given short shrift by both the client—because it is often caught in the “fixed” budget mentality—and the vendor—because it just wants to make the sale and unfortunately will take the client’s word for what it thinks will be motivational.
So how about a little scientific perspective? Perhaps it will give pause to those who are going through the process of determining how much to spend on an incentive reward.
Science Behind Incentives
People all have different facets to their personalities, different characteristics that make up who they are. Understanding your employees, their characteristics, strengths, and weaknesses is critical to understanding how they will perform. How well do you understand your incentives? It’s also critical to the success of your incentive program.
Behavioral scientists think about the characteristics of rewards in terms of intensity, frequency, and duration. The intensity of an incentive refers to its meaningfulness to the individual. The frequency of the reward refers to when it is given and how often. The duration of the reward signifies when the incentive starts and stops.
These three factors can be utilized in different ways to change the impact of any reward system. If the intensity, frequency, and duration of an incentive are not aligned with the desired behavior, then the incentive will not have an impact. Think of it as a mismatch between the person and the job. An incentive’s job is to create behavior change. If you understand the characteristics of your incentives, you can better match them to the desired behavior change you are seeking.
Looking at each the intensity, frequency, and duration can help us design an optimal incentive program. Obviously we want our incentives to have great intensity. The more meaningful the reward, the better. However, the intensity of an incentive is often tied to its monetary value. As a result, we must always balance the action or behavior we want with its worth to us. More simply put, how much are we willing to invest to get the behavior to occur? There is a range of intensities, or meaningfulness, that will produce the behavior.
With over 35 years in the incentive industry, Ley Borlo consults with clients, comparing price, choice, and value of the various award systems that exist in the industry. He is a partner at Incentives Inc., a pioneer in the use of gift cards as incentive awards. He developed www.awardemployees.com to display the many gift card reward solutions provided by Incentives Inc., as well as many articles on various subjects about the incentive industry. He can be reached at leyb@incentivesinc.com.
Dr. Joshua C. Klapow is a clinical psychologist and associate professor in the Department of Health Care Organization at the University of Alabama at Birmingham’s School of Public Health. He is also the chief strategy officer and chief behavioral scientist for ChipRewards Inc., www.chiprewards.com, a consumer health incentive company. He serves as a chronic conditions and behavioral science consultant for a number of organizations, including the World Health Organization. He is also the author of Living SMART: 5 Essential Skills to Change Your Health Habits Forever, a consumer book on lifestyle change. He can be reached at josh.klapow@chiprewards.com.
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