Avoiding the pitfalls of mismanagement of incentive schemes

In the battle against resistance to change, a key strategy is to motivate employees through the change journey by incentivizing continuous improvement. In this article, we examine incentives to motivate employees and how they might impact individuals.

What types of incentives are used in change management?

Incentives can be delivered by an organization internally or be exerted by external factors. For example, internal incentives might include rewards such as bonuses.

Internalized incentives are often dictated by external factors. For example, external demand for new products and improved services or an increase in complaints could both compel and motivate change. Internal incentives can support such external incentives; for example, bonuses awarded to customer service staff for improving customer satisfaction numbers by implementing automated customer reporting.

Financial incentives

Financial incentives are part of an organization’s system of reward and recognition. Employees are rewarded with salaries, bonuses, equity, and other financial benefits. These are important – how many people would turn up to work every day if they weren’t paid? However, they are not the only way to incentivize people.

Non-financial incentives

Financial incentives work best when combined with non-financial incentives. These might include allocating incentives based upon seniority or performance. Such incentives could be ‘gifting’ attendance at conferences and training events, or public recognition of achievement. At the team or organizational level, incentives could include allocation of resources. Other non-financial incentives include:

• Mentoring and support
• Training and development
• Increasing responsibility
• Providing autonomy for work routines

At the organizational level, incentivization includes good leadership, open dialogue, multi-faceted project teams, recreational and dining facilities, awards and recognition. Including an element of competition or market benchmarking also works as an incentive, as does performance management systems.

Whatever the incentives employed, it is imperative that they are clearly defined and administered in organizational policy and procedure. The criteria for awarding incentives must be transparent and measurable.

Incentives may not work how you expect

Incentives are intended to support a business in the achievement of its goals. However, they can also have unexpected consequences. For example, merit-based incentives that reward some employees but not others may disincentivize those who aren’t rewarded.

Other merit-based rewards, such as attendance at training events or workshops, may be seen by some employees as a reason for keeping wages lower, because of the cost of giving such incentives.

In addition, incentives may create a workplace environment that removes the intrinsic motivation for people to do good work and develop their careers. By creating an incentive-based culture, it may cause people to apply themselves only if an incentive is offered and rewarded.

Finally, a mismanaged incentive scheme could encourage cheating and unethical behavior, and discourage teamwork.

In conclusion

Incentivizing employees can be a highly effective strategy to motivate continuous improvement in the workplace. However, the strategy is not without its pitfalls. Financial incentives are important, but in combination with non-financial incentives they take on new meaning.

An incentive scheme that is not properly planned and effectively managed can produce unintended negative outcomes. Merit-based incentives tend to target high performers, and neglect employees at lower levels. This can obstruct change, creating a two-tier, dual-speed organization in which lower-level employees see little potential to forge careers.

Organizational level incentives reward teams, and, while producing indirect benefits for individuals, are often central to the structure required for successful incentive-based cultures.

When operated effectively, incentive schemes that operate at multiple levels, across work silos, and provide a combination of financial and non-financial incentives can help to attract, retain and motivate employees. The key is to ensure that the incentive scheme makes justifiable rewards for identified goals, and that all employees understand the incentives scheme and buy into it.

In brief, incentives are another tool to be used to engage employees in change and continual improvement, and it is engagement in change that is the ultimate driver of organizational change success.

To develop the skills, strategies and techniques that will drive your organization’s change leadership capabilities, and to discover how a Change Agent Bootcamp and coaching in consulting and facilitating will help your organization and leaders produce lasting change, contact Primeast today.