Incentive program

Incentive program

An incentive program is a formal scheme used to promote or encourage specific actions or behavior by a specific audience during a defined period of time.


Although incentive programs have been around for more than 100 years, it wasn’t until the 1990s they began experiencing an enormous rebirth.


In recent years, the incentive industry has seen an upsurge of academic research proving that incentives are a legitimate motivational tool.

How to Design an Effective Incentive Program

However, if programs are to be effective, all the factors that affect behavior must be recognized, including: motivation, skills, recognition, an understanding of the goals, and the ability to measure progress.

Many companies mistakenly assume that what works for one organization will work well for all organizations. Companies often attempt to create incentive programs without thinking in detail about how each program feature will best suit their targeted audience. Providing pie and ice-cream when employees desire flexible work hours, paid time off, training, or the ability to work from home is an example of a negative incentive. To facilitate the creation of a profitable program, every feature must be tailored to the participants’ interests. A successful incentive program requires clearly defined rules, suitable rewards, efficient communication strategies, and measurable success metrics. By adapting each element of the program to fit the target audience, companies are better able to engage program participants and enhance the overall program effectiveness.

An incentive program represents a substantial investment to most organizations. Receiving a sufficient return on that investment requires the full participation of the program participants. Incentive programs are based upon the concept that effort increases as people perceive themselves progressing towards their goal. In “The Art of Motivation: An Incentive Industry Primer,” the Incentive Marketing Association ties incentive programs to the psychological equation: Ability x Motivation = Performance. [cite web |url= |title=“The Art of Motivation: An Incentive Industry Primer”] In order to properly motivate, programs must be designed to offer a variation of products and services to program participants based on their unique interests and diverse needs. Successful programs need to carefully develop their reward methods to keep participants eager to approach a new goal once they have achieved a reward.

In order to create an effective program, organizations must keep the overall objective in mind when considering program design and implementation. Objectives should be formed based on the organizations overall goals and should be straightforward and specific so participants clearly understand the expectations. Program objectives can vary depending on the needs of each individual organization. They should be challenging, yet achievable. If objectives are viewed as unattainable, the program will be destined for failure. Objectives may include motivating employees, recognizing performance, persuading customers to make a purchase, or even reinforcing a marketing message. Once the program goals have been determined, every aspect of the program must be measured against this goal in order to ensure the program's success in goal achievement. If successful, objectives should provide measurable results allowing the organization to track performance and measure the overall success of the program.

Types of Incentive Programs

Points Program: Points-based incentive programs are a type of program where participants collect and redeem points for awards. Depending on the program type and the organizational objectives, points can be awarded on a number of criteria including positive employee behavior, the demonstration of organizational values, repeat customer purchases, the sale of new products, increased overall sales, or even the use of proper safety precautions. In addition to point awarding, the levels at which points can be redeemed can be customized by the organization and set at virtually any level. Points programs are a way for organizations to motivate behavior over time while improving the organizations’ overall performance.

Employee: Employee incentive programs are programs used to increase overall employee performance. Employee programs are often used to reduce turnover, boost morale and loyalty, improve employee wellness, increase retention, and drive daily employee performance.

Consumer: Consumer incentive programs are programs targeting the customers and consumers of an organization. In a recent study conducted by Bain & Company’s research, researchers found that a simple 5% increase in a company’s customer retention rates will increase the average lifetime profits per customer. [cite web |url= |title=“Keeping Your Best Customers for the Long Term” ] Consumer programs are becoming more widely used as more companies realize that existing customers cost less to reach, cost less to sell, are less vulnerable to attacks from the competition, and buy more over the long term.

Dealer/Channel: Dealer incentive programs are used to improve performance for dealer and channel resellers using sales incentive programs. These programs help companies capture market share, launch new products, reduce cost of sales, increase product adoption, and ultimately drive sales.

Sales: Sales incentive programs (Also termed Sales Incentive Plans or SIPs) are used to motivate salespeople to achieve sales goals over a period of time. These programs are primarily used to drive sales, reduce sales costs, increase profitability, develop new territory, and enhance margins. Sales incentive programs have the clearest connection directly to outcomes.

Online Programs

When first emerging in 1996, the use of online incentive programs was extremely rare. According to the Online Incentive Council (OIC), since its emergence, the number of online programs has almost doubled in size every year. At present, nearly every traditional incentive company offers an online component in programs including employee motivation and recognition, sales performance, channel programs, and consumer promotions. Companies that run their programs online experience efficient communication, reporting, and awards fulfillment. Online incentive programs pose an attractive alternative to traditional offline programs since online programs save money and time and allow organizations to have much greater control.

Incentive Rewards

While there are many important factors to consider when creating an incentive program, selecting the appropriate rewards is vital to any programs success. The goal in choosing rewards is to select items that will spark the participant’s interest or feelings, and support the program’s objectives. Effective rewards will both motivate short-term behavior and provide motivation over time. While rewards come in a variety of shapes and sizes, here are some of the more common types:

Cash: While incentive program participants often state that they prefer cash to non-cash rewards, research has shown that cash is a poor motivator due to its lack of “trophy value.” In a recent study conducted by the Center for Concept Development, three of five respondents agree that a cash payment is perceived to be part of an employee’s total compensation package and not as part of an incentive program.cite web |url= |title=Center for Concept Development: A Study Conducted among Current Users of Merchandise and Travel Items for Motivation/ Incentive Applications] Additionally, cash is quickly forgotten as many participants tend to spend it on everyday items or use it to pay bills. Given that most people don’t generally talk about cash awards, cash programs do little to generate the interest required to create an effective incentive program.

Non-Cash Rewards: Merchandise and other non-cash rewards are more often perceived as separate from compensation. Accordingly, non-cash rewards tend to stand out as rewards for performance, which enhances their long-term effect. Branded merchandise and other non-cash rewards have high trophy value, bringing greater recognition to the recipient at the time of the award and possessing a long-term lasting effect that can result in increased engagement in the organizations goals.

* "Gift cards/certificates"- Gift cards/certificates are prepaid retail cards or certificates which are redeemed at a later time at checkout. In general, they are available in two types: (1) cards which carry a major credit card brand and are redeemable at all merchants accepting the credit card brand; and (2) retailer-specific cards, issued by well-known merchants, redeemable only through the issuing retailer. In the 2005 Incentive Federation Study of Motivation and Incentive Applications, gift cards were ranked as the most frequently used type of corporate reward. [cite web |url= |title=Federation Study 2005: Incentive Federation Survey of Motivation and Incentive Applications]

* "Merchandise"- Merchandise rewards can range anywhere from small branded key chains to high-end electronics. In a 2005 study conducted by the Center for Concept Development, 73% of respondents agreed that more stimulating, memorable incentive programs can be built around merchandise as opposed to cash rewards.

* "Travel"- Travel rewards can best be defined as a face-to-face event designed to motivate, either directly or indirectly. In a 2005 study conducted by the Center for Concept Development, 51% of respondents perceived that travel is remembered longer than other incentive rewards.

* "Experiential"- Experiential Rewards are rewards which provide program participants with an experience. This form of reward gives organizations the ability to offer their employees and customers innovative, rewarding “life experiences” as incentives. Examples of experiential rewards include a seaplane flight and lunch, a two hour horse ride on the beach, a day of sailing for two, a “meet and greet” with a star athlete, or even the use of a party planner for an occasion of one’s choice. Experiential rewards allow participants to share their experiences with others and reinforce the reward and the behavior that led to the giving of the reward.

Non-monetary Rewards: Non-monetary incentives are used to reward participants for excellent behavior through opportunities. Non-monetary incentives may include flexible work hours, payroll or premium contributions, training, health savings or reimbursement accounts, or even paid sabbaticals. If it comes to environmental behavior, often labeling and recognition certificates are used. This may include stickers, T-shirts with banner logo etc..

See also

* Incentive
* Motivation
* Goal-setting theory
* Travel incentive
* Loyalty program
* Loyalty marketing
* Employee development
* Organization development
* Organizational performance
* Management effectiveness

Notes and references

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