Why Individual Incentive Programs Don’t Work

Isn’t the objective to drive TEAM performance toward the company PROFIT goal?

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Back in December, I was shopping at a large retailer with my daughter for a Christmas gift for my wife. One sales associate showed us an item we were interested in. Then we looked around at some other items. A second sales associate starting “hounding” us. We decided to buy an item that second associate showed us. That’s when a brawl ensued. The first associate argued with the second about who “owned” us as the customer. Both were quite rude and oblivious to us, the customer.

These two sales associates are in the dog eat dog world of incentive compensation. What is right for the customer and company is often ignored. Look at the recent Wells Fargo debacle. Wells Fargo created 2 million customer ghost accounts just so they could make their incentive numbers. When people are incentivized to make the numbers at all costs, they often do dumb things.

Individual incentive programs drive “micro-think” which is never good for the organization as a whole. In fact, the only incentive programs I like are ones that incentivize teams to work together. In the case of my shopping experience, imagine how much better the situation would have been if those two sales associates worked together to get us to buy both of the items we looked at. If those two were incentivized together, they would have.

Individual incentive programs are a dumb idea. If you insist on dumb ideas, be careful what you wish for. If you incentivize people for individual results, don’t be surprised when they don’t give a hoot about the good of the company. And don’t make the mistake of thinking individual results add up to big results for the company. They don’t. Synergistic results add up to big results. And the only way to get synergistic results is in teams. And teams won’t synergize unless they are paid to.

4 ways incentive programs can work

1. Eliminate all individual incentives. If you are using incentives because base pay is not up to market, bring base pay up to market before you do this.

2. Incentivize the entire company on the only metric that matters: achieving the profit budget. The concept is that everyone gets the goodies if the company hits the number, but no one gets the goodies if it doesn’t.

3. Once you’ve done this it will make a strong statement. But back that up with an employee-wide meeting to tell people why you did it, and what new behaviors you now expect.

4. Don’t give in to giving individual incentives to your rainmakers. When the rainmakers have the same incentive program as everyone else, it will encourage them to teach their co-workers how to make rain.

As companies put together their goals and benchmarks for this New Year, consider implementing group incentive programs. You’ll have a more productive, efficient and invested team in 2017.

Steven L. Blue is the president and CEO of Miller Ingenuity, an innovative company revolutionizing traditional safety solutions for railway workers, and author of the new book, American Manufacturing 2.0: What Went Wrong and How to Make It Right. For more information, please visit www.SteveBlueCEO.com, www.milleringenuity.com and connect with Blue on Twitter, @SteveBlueCEO.