A fascinating article in BusinessWeek looks at the unique culture of online shoe retailer Zappos. The company, founded and run by Tony Hsieh, and now part of the Amazon retail empire, believes it has a unique corporate culture that in itself is a marketable commodity. Visitors pay to tour the companies offices and get an insight into the DNA of the company.

As on online business, all you have is your reputation. You have no physical presence. So Zappos goes out of its way to show a human side to the organisation.

Lots of companies like to make out they’re wacky places to work in order to disguise actually how drone like the work is, and where Zappos fits in this picture is uncertain. It’s definitely not something that would come naturally to a British or European company.

If there is anything to learn from Zappos, is that making a unique company culture can be not only good for staff loyalty but also PR and marketing. Motivation systems have a part to play in building a unique company culture, by rewarding the behaviours you want to encourage.

Progressive companies can target certain actions, for instance internal show-and-tell sessions that help staff communicate and build understanding, and reward good presentations. Prizes for internal company team competitions, logged on an online leaderboard, can act to focus everyone’s attention on key issues and create a healthy competitive atmosphere. Many organisations suffer loss of staff morale when employees do not get a sense of the bigger picture and their place in it, and what else is going on around them, Instead, cliques, petty politics and internal dogfighting – negative competitive aspects – undermine the organisation.

A big part of what Zappos do is to try and make work like play. At IncentiveDirect, we believe a more powerful concept is to try and make work like a game.

Are staff reward schemes the first thing to be chopped in a downturn?

In a white paper, The “Evidence-Based” Case for Incentives, The incentive research foundation makes the case that reports of the death of staff incentives are greatly exaggerated. The report puts the case strongly that incentives, when applied properly, do drive performance improvement:

“Incentives, properly designed, implemented and continually evaluated, can and do provide measureable benefits. The study, Incentives, Motivation and Workplace Performance: Research and Best Practices (2002) found that individual incentives resulted in a 27% improvement in performance and that team incentives improved by 45%.”

However, I’m sure HR departments up and down the country will be looking at their 2009-2010 budgets and wondering if they are really getting an adequate Return on Investment from their staff reward and recognition schemes. In many cases, they will then face the problem that they have no defined objectives or quantifiable measures of success in place in order to begin answering that question.

Unlike sales incentives or direct productivity incentives, staff reward schemes are a somewhat more nebulous affair, much harder to measure and judge the success. To some extent they are offer an intangible feel-good factor that may be an emotional factor in determining an employee’s likelihood of staying, or inspiring their performance at work.

In a recession, while there may be more people seeking work, and replacing staff who leave may be easier, the cost of recruiting and training new staff is still great. Thus there is still great value in any measure that can reduce staff churn. But are staff rewards effective at this?

Quantifiable measures of success can only really be evaluated over a long period, and are statistically only relevant in a large organisation. Which leaves qualitative studies: surveying staff to understand their satisfaction levels, and whether the rewards and other flexible benefits in place make a difference to whether they would stay or not. If the overriding answer is no, then perhaps the reward schemes currently running are not cost-effective.

Our belief is that incentive schemes that reward staff for doing what they should be doing anyway are ineffective and a poor use of budget. Effective motivation activity needs to have a defined objective, and a means of measuring success. Our experience is that incentives work best to address a particular behaviour, and are ideally suited for actions that lie outside of an employees job remit, such as recycling or energy consumption. These are behaviours that can have a dramatic impact on the company’s bottom line, and can help organisation and departments pull together to achieve a common goal.

If reward and recognition schemes such as employee of the month, long-service, star performer are judged to be effective motivators and aid staff retention, they by all means keep them, but if the schemes are in place as a legacy of bygone days, organisations should be brave enough to replace them with more focused incentive activity.

In a study by the Department of Economics at Purdue University, a experimental study called “Entry into Winner-Take-All and Proportional-Prize Contests” revealed that:

” In a winner-take-all tournament, the highest performing contestant wins a prize. In the proportional-payment design, that same prize is divided among the contestants according to their share of total achievement. We find that proportional prizes elicit higher entry rates and thus more total achievement than the winner-take-all tournament. The proportional-prize contest performs better because it encourages significantly more entry among low ability contestants, without discouraging the entry of high ability contestants or limiting entrants’ performance.”

If we consider a competitive sales incentive as a kind of contest, then the same findings apply.

By rewarding only the winners, the overall performance improvement is not as great as a proportional reward system that recognises growth by all participants.

The reasons are obvious. Even if they recognise that they wont be the star performer, in a proportional contest every participant knows that it they can up their game, they can reap the benefits.

A winner-takes-all situation can breed resentment and disengagement. By definition, everyone else is a loser. Once a participant realises they are not going to win, they will generally lose motivation and give up trying. The resentment can come if they feel the odds are stacked against them, that due to external factors – such as not having the high-yield accounts, or the best store location – that it’s not a level playing field.

Proportional rewards can help improve team spirit, especially if the size of the overall pot is variable too. Now everyone is pulling together to improve the overall value of the prize fund, as well as competing to increase their own share of it.

Basing a sales incentive based on percentage sales improvement rather than sales volume actually reverses the problem. It’s much easier for a smaller dealer or low level salesperson to grow their sales by 10%, for instance, than the star salesperson or premier retailer.

Our mantra as always is to keep mixing it up. If you keep rewarding the same behaviours and on the same basis, you’ll only engage, motivate and drive the performance of the same band of participants in your incentive. The key is to keep experimenting with new ways to get different groups of users in tune with your activity.

A recent white paper from Incentive Performance Center, entitled Why Incentive Programs Endure Recessions, offers some interesting views on why motivation schemes are more recession proof than other forms of marketing.

The paper explores five areas why ‘savvy’ companies turn to incentives during a downswing:

1. Low fixed costs, variable costs driven
   by performance, high potential return
2. Ability to effectively target audiences
   (no pay and spray)
3. Relative ease of measurement
4. Flexibility
5. Potential for both

It’s inevitable that some companies will see an incentive program as a ‘cost’ that should be cut during a recession. Others will perhaps turn to cash, to make up for a lack of pay rises. But as we have hammered home before, cash is a poor incentive (see “Still thinking cash is king?” and Why cash kills motivation). A depressed economy won’t suddenly make cash an effective incentive tool.

Elsewhere, the latest Bellwether report from the IPA, shows marketing budgets slashed by over 40%, with the biggest loser the media (eg PR and advertising).

Sales promotion, which would include incentives and motivation activity, though down, is faring better than most other forms of marketing except online. Thus, the budgetary share for sales promotion has increased. Sales Promotion now accounts for 9.2% of overall spend, compared to Main Media (30.3%), Direct Marketing (24.9%) and ‘all other’ (25.7%).

It’s an ill wind that blows nobody any good, and those companies that can deliver cost-effective incentive solutions can gain market share and increase their customer base even more when everyone else is batttening down the hatches. There’s business to be won in a recession, no doubt.

When defining your incentive activty, it’s tempting to try and get instant performance results, such as increased sales. But this can result in a degree of short termism, and may only be applicable to certain staff or participants.

Direct behaviour such as increased sales, or reduced costs, are easy to measure, but unless other things change there is likely to be a limit to how far these performances can be improved.

Indirect behaviours are one or more steps removed from revenue generation or cost savings. Examples of one-step removed behaviours might be to increase the number of leads, or improved customer support, things that will lead to more or greater business in the future.

Long terms goals are used to drive the core values of the company, and enforce a positive company culture. Measures might include improving employee satisfaction, enhancing the public reputation of the organisation, or increasing market share. The benefits to the bottom line are long-term but profound. Ultimately the DNA and success of the company will be a result of the long-term behaviours. Rewarding long-term goals means identifying and communicating behaviours which contribute towards them.

Are you rewarding direct behaviours, indirect behaviours, or longer term goals?

Ideally you should reward across all three.

Over at the Compensation Force blog, Ann Bares groups the measures of an incentive plan into 3 categories, Lead Measures, Operating Measures, and Lag Measures. She defines a lag measure as reflecting success that has already happened, generally recognised through accounting practices, such as stock price. Bares continues: “Running an organization solely on the basis of lag measures is like steering a boat by watching its wake.”

Are you rewarding achieved success or future growth?