Incentives & Personal KPIs - How to use them to get Results
Updated: Jun 19, 2019
Finding the High Performer
I remember attending a week long training course on hiring. One point stood out about how to attract High Performers.
High performers like incentives and will trade salary for a chance to earn more.
Low performers will not because they don’t think it’s within their control.
So the attract more high performers and detract low performers, advertise a lower salary with high incentives.
This is because High Performers are focused on results. Most other people are focused on Processes & Behaviours.
On reflection, this sometimes reflects the attitude differences between Executives and Middle Management.
In the movie Glengarry Glen Ross – Alec Baldwin comes in as a sales trainer to handle an underperforming team.
A salesman character played by Al Pacino is not in attendance.
Nobody knows where Al Pacino is, but Alec Balwin looks up at the sales tracking board and Al Pacino is miles ahead of everyone else. He doesn’t say another word and starts to train, talking about leads they’ve been given.
You see Al Pacino later, in bars at night talking to people and instilling them with ideas. He obviously doesn’t use the leads he’s given.
This movie is not a great example of sales ethics, but the point is that “Al Pacino delivered results”. Not attending sales training or “bad behaviour” didn’t matter.
To be a high performer, you sometimes create your own processes and behaviours.
Sales is a very clear results driven area, but for most professions, we don’t have such a tracking board.
This is why we often have other measures – KPIs for example instead of revenue or profit targets. Everything I say about incentives later also apply to KPIs.
Working for someone who focuses on results mainly is very, very different to working for someone who focuses on behaviour or if you followed processes. Middle management in large corporations in particular, can be extremely focussed on process and behaviour. High performers are often forced to leave if management has the wrong focus.
There are 2 general types of KPIs and Incentives:
Team or Group (or Company).
Group / Team Incentives or KPIs
The argument for this is that it makes people serve the interests of the company over themselves.
If have found that it only works in one circumstance.
If the culture already is team or company focused.
Where you try to ‘make’ people who are individual performance focused by ‘forcing’ them into group or company incentives and the culture doesn't support it, the following I’ve observed happens:
High performers try to negotiate something that pays them the same or more than before.
They will argue for a bonus anyway when the team doesn’t make perform (which you give because we don’t want to lose them).
High performers find another organisation as soon as possible that will pay for performance (even if they succeed in 1 & 2).
The lower performers stay whilst the higher performers leave (especially if you fail to change the culture or get the team performing).
Cynical? Not by my observations.
This is because without there being already a history or culture of team focus, the individual can’t really affect the performance of others. Only themselves.
It is not under their control.
Executives or the CEO might have a company based incentive. But that is within their control and responsibility.
With the right culture there, the incentive reinforces behaviour. The team polices themselves and any new person gets the idea quickly.
An incentive only works when the factors for achieving the incentive or KPI is within the individual's control.
If you are moving the culture in that direction, then move the incentives progressively. Otherwise you risk losing those good people.
Individual KPIs or Incentives
When setting individual KPIs and incentives, be aware that:
The incentive is within that person’s control and it benefits the company.
It is not too far away as to provide no motivation.
Is not too complex.
Remember the stronger motivation to achieve is internal, not external like an incentive.
I have seen an incentive based on winning revenue – around $10 million in one contract. But it was not profitable because the price was too low.
That contract won one salesman $150K in bonus. But the company was worse off.
The incentive was later revised. The result was better for everyone involved – including that salesman – if you structure it right.
Also we have a culture now where people move around and have shorter attention spans. Having a target too far away or too complex to pick up quickly and it won’t work.
If you tell a kid to - “Get top marks at the end of the year and I’ll buy you a bike” - that’s too far away to work.
“Get top marks in this next test and I’ll get you 3 movie tickets” – is close enough to drive behaviour. At the end of the year, you might find he/she topped everything.
Or in being complex:
“Pass the test, but if 50% of people also pass the test, then you have to work out what the median score is and if you beat that, then I’ll give you a bike – providing the price has not increased by more than 10% by that time”.
That is not going to drive anything.
And finally reminder that you can’t make a person perform just by giving them an incentive. Their primary drive is internal.
It is said that Warren Buffet wouldn’t buy a new car because he couldn’t stand the idea of it costing him millions, years down the track if he invested the money. But most people can’t think that way. Look at the credit card debts of the population and you will see that motivations are more immediate.
So the KPI is a reinforcement usually. Not a key reason for performing actions.
Case Study - Moving a Culture to Perform with Incentives
I remember setting incentives for a hundred locations around a country for a leisure based business. The staff were normally just order takers and customer service.
A little like “would you like fries with that?” – the $2.50 fries cost maybe 50c – an 80% profit margin was made on the product once you had the customer at the counter.
The task was to get ‘order takers’ and ‘customer service’ people to sell – asking one or 2 more questions.
But remember, incentives by themselves don’t change behaviour.
The way we went about it was to have 4 training managers travelling the country coaching, reminding, demonstrating and helping staff see that they could make a lot of extra money.
The incentives encouraged staff early on. Paid a lot for a moderate achievement. Every 6 months I revised them. Locations that picked up I pulled back the payment to a more ‘normal’ level.
Of course you would get the complaints of “you got us to sell and now you’re taking the money away” and such – because we did pay a lot for getting them up there.
The point is nobody sold any less because we reduced the incentive.
The result is a cultural change – reinforced by incentives. High payments for a little performance didn’t necessarily change behaviour. It was an overall cultural change, assisted by training – for a team. One person might start doing it and others start seeing how much they get (performance and incentive visible to all in the team) and observe how easy the person did it. Then they started doing it. The training managers went around reminding them and coaching them. Once they got there, it was natural. Dropping incentives back to normal didn’t stop them.
By the end of 2 years – the result was these additional products accounted for 10% of revenue, but 40% of national profits.
Staff were having friendly internal competitions against each other to maximise their ‘conversion’ amongst customers and helping and learning from each other.
Incentives & KPIs support a cultural and behavioural change. They are not the cause of it.
But they can be an indispensable partner.
Motivations – It’s not about money
In the book – “Originals – How Non-Conformists Move the World” by Adam Grant, there was outlined a study of customer service agents. Originally it was about why some employees stayed longer than others.
Tens of thousands of pieces of data was analysed.
The hypothesis of “if their work history showed stability then they are more likely to stay longer” was tested (this is how often we assess resumes currently).
It was found that past ‘length’ of stay had no significant correlation with their length of stay with their current job.
That is, if someone moved around all the time previously, didn’t stay shorter than the guy who stayed for years in the prior job.
Of all the things looked at, one primary factor stood out.
What web browser the person used in their job search.
That's right, the web browser. But not related to the browser results.
If they used Firefox or Google Chrome compared to Safari or Internet Explorer, they stayed on average 15% longer, had 19% less absenteeism and better performance achieving satisfaction ratings within 90 days vs 120 days.
And it wasn’t that certain web browsers returned different results.
It was this – on the Mac, Safari is the default browser. On a PC, Internet Explorer is default.
To use Firefox or Google Chrome, they must be looked for, learned about and downloaded. They are different browsers.
The person who does this took some initiative to do so. Maybe they researched, found something different. They were not willing to accept the default and normal procedure.
Those people naturally performed better and took more responsibility and initiative.
The point is there is behaviour or actions native to a person. Incentives could be the same for everyone. But it is only reinforcement.
Money is the default motivation see. You will find awards, recognition, increased responsibility much stronger motivations for the high performer than money. The good managers do this. But if you don’t also pay, they have a reason to leave.
So understand, incentives are important, but they come 2nd. And you must structure it carefully, otherwise you are paying money for nothing.
Culture, self-motivation and management style are more important factors driving performance.