To Get Incentives to Sing, Adjust the Balance

Financial incentives can be a powerful tool, but it's important to administer them with great care.
scott-tibbitts

Splitting financial incentives with those that create the result is a powerful tool but can be dangerous ground that must be navigated carefully.

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You may have been there. A situation arises in which if a team or individual applies extraordinary effort, your company would benefit greatly. But it will take heroics beyond their job description for that to occur.

You assess your quiver of carrots and sticks: Command the result? Tie to bonus plans? Re-emphasize our company commitment to going the extra mile? Threaten their job security?

Or, share the reward for the accomplishment with the team?

This last idea can be powerful medicine, but it must be administered with great care. Think "Goldilocks" – not too much, not too little. Just right.

After years of trial and error at Starsys, we discovered three keys to achieving the necessary balance:

Balance the company-team split.

The team should get between 5 percent and 15 percent of the reward to the company. In general, less than 5 percent did not improve the result; greater than 15 percent was throwing money at the problem. But in that sweet spot between the two percentages, a lot can be accomplished.

Balance the priorities.

Deadline-oriented incentives can challenge quality systems. Look at the Challenger disaster in 1986 as a case in point: pressure to meet a schedule versus the safety of seven astronauts. Powerful schedule incentives can only be implemented within a balancing, rock solid quality context that cannot be compromised.

Balance the reward.

Resentment is created in a company when a particular program or team is called out to receive an incentive, particularly if this is a rare event. You can inoculate the company from this by sharing the reward with everyone in the company.

We tweaked the balance till we got it right. For us, it was two-thirds to the team or individual directly creating the result, one-third to the company. We also chose to share the company split evenly among the employees regardless of salary to further make the point that we were all pulling together.

This last piece made our incentives really sing. It gave us the ability to report progress-to-goal daily to the company, and have everyone pulling hard for the result whether they were on the team or not. Even though the reward to the non-team employees might have been small, the message sent made it a company goal rather than a team goal.

As with powerful medicine, we used this sparingly to prevent a context of entitlement, but when we did, we had 100 percent of the company pulling out all the stops, and everyone celebrating the result when we succeeded.

Incentivizing results can be a strong tool for motivating your employees to go above and beyond. But finding the balance that benefits all of the players – that "just right" spot – is essential.

Scott Tibbitts is the founder and former CEO of Starsys Research and a nationally recognized speaker on entrepreneurship and legendary corporate cultures. In 1988, he approached NASA with an invention made from hardware store parts. Starsys became a world leader in spacecraft devices, with products on 250 spacecraft and an unprecedented 100% success record. Scott is the co-founder of eSpace: The Center for Space Entrepreneurship, the only congressionally funded aerospace incubator, and is currently working with telecom providers to deploy an invention that prevents texting while driving.

Connect with Scott at scotttibbitts.tumbler.com or on Twitter @scotttibbitts.

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