Monday, June 30, 2014

Non-cash Incentives: Why they work and why more companies should use them

A new study from the Incentive Research Foundation and research firm Aberdeen Group
finds that best-in-class companies are nearly one third more likely to use non-cash incentives in their sales incentive programs. While incentive program participants often state that they prefer cash to non-cash rewards, research has shown that cash is a poor motivator due to its lack of trophy value. Additionally, cash is quickly forgotten as many participants tend to spend it on everyday items or use it to pay bills. Given that most people do not generally talk about cash awards, cash programs do little to generate the interest required to create an effective incentive program. Research shows that pay for performance often gives only short term gains, frequently gives no gains at all, and may give reduced performance. Merchandise and other non-cash rewards are more often perceived as separate from compensation. Accordingly, non-cash rewards tend to stand out as rewards for performance, which enhances their long-term effect. Branded merchandise and other non-cash rewards have high trophy value, which brings greater recognition to the recipient at the time of the award and possesses a long-term lasting effect that can result in increased engagement in the organization’s goals.

This study conducted by the Incentive Research Foundation and the Aberdeen Group surveyed 246 end-user organizations on their sales performance management best practices. Through a number of metrics, including the percentage of sales reps achieving quota, the average deal size or contract value, and overall team attainment of sales quota, it rated the companies as best-in-class (20 percent), industry average (middle 50 percent) and laggard (bottom 30 percent). It found that the best-in-class companies are “more aware of the need to manage their sales professionals holistically”.(1) What was revealed in this study is that best-in-class firms are less likely to focus only on monetary awards than they were only a year ago, and that they are 31 percent more likely to rate non-cash incentives as “must have” in rewarding sales performance. While laggards are also likely to agree with this sentiment, the research found that these companies are also more likely to use non-cash incentives too late in the process or to use them ineffectively. Companies report three different behaviors that achieve measurably better sales and the data supports these for different recommendations for sales operations to consider. These behaviors are including non-financial incentives as a formal component of sales compensations, turn to external providers to help design and manage non-cash incentive programs (these can be complex and makes it easier for sales leadership to focus on main prize), and remember that non-payroll, channel sellers and distribution arms are often the lifeblood of a sales operation’s success story.

Like any other business expense, the funding of reward programs attracts intense scrutiny from business leaders looking to cut expenses and it is for that reason that it is important that these findings cannot be over scrutinized. Travel and merchandise awards often produce greater bottom-line benefits than other incentive alternatives and capture employee attention. As time passes businesses need to evolve, and with that their awards programs need to as well.

The IRF study and its full range of findings are available on the foundation’s website.

1. Ostrow, Peter. Incenting Success: Best-In-Class Sales Management (2015): n. page. Apr. 2015. Web. 19 June 2015.

No comments:

Post a Comment