Annual Incentive Programs Are Bad

I was reminded by a post from Dr. Bret Simmons the other day that seeing meaningful progress is one of the most important things for maintaining engagement with employees.

That made me think of the “typical” sales incentive program. 

The Dilbert Program

Many incentive programs, especially for sales organizations, are designed to reward performance at the end of 12 months.  Hit your annual sales goal and get your bonus; or hit your annual sales goal and get a trip to the Republic of Elbonia.  Or in the worst possible situations – hit your goal after a year and then we’ll rank everyone and only take those in the top 10% (thanks for hitting your goal – here’s some pictures of the top 10% in Elbonia drinking heavily, try again next year.)

A program with a single, long-term goal is probably a bad idea.  Incentives should be short term, focused on specific behaviors and removed once the new behaviors are regularly demonstrated to be better than the old behaviors.

But the annual program continues to be a staple in the incentive program quiver.

I’m sure some of it is because most companies budget on an annual basis so they structure everything around that. 

But I think you should eliminate your annual program because:

• People perform better and are more engaged in their work when they see progress.  When people achieve milestones along the way toward a greater goal they work harder.  Therefore, the annual goal program is less effective than it could be.
• Most annual programs do a lousy job of communicating progress effectively.

In the first case – the human brain isn’t very good with time (I’ve written about this before.)  Rewards in the future have much, much less value than rewards much closer in time.  We place greater value on things that happen sooner than later.  Measuring small victories and incremental achievements drives greater engagement with the task.  Put the achievement and the reward too far into the future and it loses meaning – or has a lot less meaning than something more urgent on our to-do list.

And secondly, most programs don’t report progress very well.  Sure they show “percent to goal” charts and highlight that you’re 20% of your goal.  But what does that really mean?  What activities brought you to that level?  You’re not sure – and the program doesn’t know since it’s only measuring sales to date and comparing that to the total goal.  Not much real actionable information there.  All you have are two data points with no context.

It’s The Behaviors

Long-term sales goals are simply financial instruments – they help the CFO not the Sales VP.  They are not incentive and reward measures.  They never have been.  Incentive and reward measures need to be tied to behaviors and, more importantly, a series of behaviors that in total add up to success.

Too often I’ve seen sales people who have done EVERYTHING wrong but in the last quarter of a program trip over a client that needs to buy a ton of widgets because their normal supplier is having problems.  The sales person get’s the win, the ticket to Elbonia and their name on the wall of fame.  But, they did absolutely nothing to earn it but since the only measure for the program was annual sales goal – they did.

Don’t Reward Annual Goals – Reward People and Behaviors

I urge you to look at your ongoing incentive activities – sales or non-sales – and find those programs that are rewarding annually with little or no ongoing reinforcement for the incremental efforts and behaviors that create success.  Don’t reward luck.  Don’t reward being in the right place at the right time. 

Reward people and their behavior on a regular basis.  

Related articles

• Why Behaviors Matter More Than Results (i2i-align.com)
• Incentives That Shouldn’t Work (i2i-align.com)
• Upending the Incentive Industry Business Model (i2i-align.com)