Incentives Operate Best One Level Up

Despite the cryptic title of this blog post, the message
here is very very important for managers and business
owners who are trying to implement incentives.

If you implement incentives, specifically tangible
incentives such as money, gifts, trips, etc., the
incentive program will:

1. Be a success at pitting the top 25% of employees
against one another as they compete for the prizes and

2. Be a failure at improving the organization because
employees who compete for limited resources usually keep
their winning tactics to themselves, rather than sharing
them with the group.

HR CONTRARIAN POINTER: The objective of incentives should
not simply be to maximize an individual’s performance, but
to maximize the performance of the group of which the
employee is a member.  By doing this, you encourage
employees to share their ideas with others and hopefully
improve the performance of all players.

As an example, if I owned a retail chain of 1,000 stores
across the U.S., I would create the following incentives:

(A) Store Managers who are part of a district would be
rewarded based on 1) metrics established for the district
and 2) how the district compared with other districts in a
region.  Obviously, individual store stats are part of the
metrics for the district.

(B) District Managers who are part of a region would be
rewarded based on 1) metrics established for the region
and 2) how the region compared with other regions in the
nation.

(C) Regional Managers who are part of the national
management team would be rewarded based on 1) metrics
established for the region and 2) overall company
profitability, which may include stock performance for a
public company.

There are 2 concepts at work here:
#1 – If you get people to concentrate on having their team
win rather than having a “me win,” they will be more
likely to share their good ideas with others and there
will be a viral impact that will improve the organization.

#2 – You cannot create targets that are so far removed
from an employee’s control that the incentives become
meaningless.  In this case, the Store Managers cannot be
given incentives based on company profitability.  You need
to keep their eyes fixed on improving performance which is
“one level up from the level of greatest individual
control.”

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