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Here’s the Incentive

By Dr. Jerry Newman

October 26, 2009

A few years ago, Green Giant had a serious quality problem: Too many insect parts and rodent hairs were turning up in its vegetables. Some compensation expert decided to give incentives to workers for finding these foreign objects, reasoning that it would adequately address the problem. Guess what? Workers began smuggling the offending objects from home and putting them into vegetables.

Unless you’re careful, incentives can come around to bite you in the, um, artichoke, as they did with Green Giant.

In almost every survey, money ranks No. 1 as the reward that most motivates worker performance. The best way to use money as a reward is to design an effective individual incentive system. But how can we harness this power for crew members without running into the problem Green Giant faced? Further, how do we use incentives without having a huge cost run-up? The answer to the first question depends on your people strategy, which, of course, depends on your organization strategy.

If customer service is the way you differentiate yourself from other quick-serves, then your incentives should promote better customer service or, at a minimum, be customer-service neutral. Run a test program to see if this goal is met before a widespread rollout.

The second question is a bit tougher to answer. Recently, I’ve been working with a carwash company that faces labor-cost constraints. We decided to implement what I call a lottery incentive system (lis). LIS solves a cost problem and introduces three hugely effective motivators. Let me explain.

We wanted to introduce an individual incentive to relatively low-paid employees. We knew from studies that individual incentives—like bonuses—are the most powerful motivator we have in the compensation arsenal. On average, individual incentives increase productivity by 30 percent, studies find. As a comparison, profit-sharing only increases productivity about 5 percent. Logic says to go with the individual incentives.

But then we faced the cost problem. I made an economic argument to the president of the company: As long as the pay increase was smaller than the productivity increase, the cost per carwash would be lower. He understood that argument, but was still concerned, legitimately, about plunking down a monetary incentive on the hope that productivity would increase. That’s when I introduced him to a lottery incentive. Instead of giving a monetary incentive for improved performance, we proposed to give internal (company printed and distributed) lottery tickets as rewards for good performance. Employees would choose a unique 4-digit number for each lottery ticket they received. The Win 4 number for our state lottery would determine the winner. If no numbers matched the Win 4 number, the money would roll over to the next week.

This type of incentive plan added two more motivators to the already powerful motivator of an individual incentive system. We know that gambling has a built-in incentive factor; casinos bank on this to attract new customers to the ever-increasing number of gambling establishments. No game in a casino has a net positive outcome. Over time, the odds are against winning. Yet people still flock to casinos. Why? There is an incentive value to gambling: The act itself is thrilling.

The final motivator kicks in when rollover builds. Studies have established that money’s motivational impact depends on the size of the payout. To demonstrate, next time you are in a parking lot, place a penny on the ground and see if anyone will pick it up. I know what happens—I’ve tried this little experiment. After the penny, try the same experiment multiple times, each time increasing the monetary value. When you hit a quarter, a few more people lean over and even more with $1. Don’t even ask what happens with a $10 bill—people chase after it on a windy day as if it were salvation itself.

The point of this example is that a $50 or $100 lottery jackpot may have some value to folks making $7.25 an hour, but watch what happens to motivation as the rollover builds. Each week we can expect to see more enthusiastic efforts to earn lottery tickets.

I don’t claim to have invented incentive lotteries. I first saw this type of incentive in a bank, where lottery tickets were given to employees for every new account opened. At our carwash the incentive will be awarded for up-selling—selling customers on more expensive washes and other side treatments. (To avoid the “Green Giant effect,” we’ve specified no lottery payouts will occur in weeks when customer satisfaction drops below the mean for the past year.)

It’s not important to talk here about the exact payout schedule, how many lottery tickets for what types of behaviors, and so on. That changes in every work environment. What is important is that the dollar cost of this incentive system is relatively low. Employees work for lottery tickets that, depending on the number issued that week, have relatively low dollar value. But the gambling attraction, combined with the possibility of winning a meaningful payout—one that could be used for a major purchase—generates considerable enthusiasm from workers making less than $10 per hour.

I understand that some of you may have ethical qualms about implementing an incentive system based on gambling. But keep in mind that some of the negative features of traditional gambling aren’t present here. Employees aren’t wagering their own money and, consequently, can’t make the addict’s mistake of wagering more than they can afford.

The wager here is work. Show more good behaviors and you receive more lottery tickets. Experiment with this idea (make sure that your state laws don’t prohibit this kind of incentive) and see how it works for you.

Dr. Jerry Newman is the author of approximately 100 articles on human resource issues and the best-seller My Secret Life on the McJob: Lessons in Leadership Guaranteed to Supersize any Management Style. Contact him at Drjerry@qsrmagazine.com.

Copyright: QSR Magazine

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