Busting Incentive Myths Part IV: One Grand Prize

April 15, 2019 Tim Houlihan

Part IV / Myth #3

Hawaii for the Only Prize

When sales managers consider which reward will have the most significant impact on their sales rep's productivity, they often land in two fields: 1. Offer the reps more money. 2. Offer them a huge reward that will cause everyone to strive toward.

The troubles with offering reps more money are well documented. It's the least successful incentive that a sales leader can offer, in terms of results, but it is sadly the most commonly offered. Those issues are not covered here. The myth being busted here is the "one big prize" story.

The scenario that creates this myth is entirely understandable: the sales manager returns from a luxurious trip and is convinced that the best reward to generate a boost in revenues would be a free trip with similar experiences. Sales managers are human, too, and are subject to that wonderful feeling of coming back from a fantastic trip and jumping on the "this will work great for the reps" train.

There are two problems with this line of reasoning: 1. Limiting the incentives to a single prize is a bad idea. 2. Just because the sales manager likes it doesn't mean the reps will find it motivational (and the reps will never say otherwise).

The BS (Behavioral Science)

The big incentive trip for the top rep isn't an effective way to improve sales for two reasons: 1. It doesn't engage the maximum number of people and 2. it doesn't improve results. As discussed in Part II/Myth 1 of this series, a small number of winners is not the most effective way to deliver significant boosts in sales.

Sales rep researchers Michael Ahearne, PhD and Thomas Steenburgh, PhD have tested this, and many other incentive systems, with real sales reps at real companies. Their research finds that a budget spread across many reps is more productive than the same budget spent on fewer reps. Their work tested different numbers of reps (1, 2, 5, 10) using the identical budget and measured the effects in sales output. They found that the same awards budget spread more thinly among ten reps generated a higher sales boost than when the same budget was spent entirely on a single rep.

That said, there is tremendous inherent value in a free trip to a luxurious destination for two reasons: 1. We know that travel, when it's completely free and devoid of cash equivalents, generates the greatest motivation among reps. (Translation: leave the dollar sign out of it and the reps will deliver amazing results.) This is true because it's often shared with a partner and it generally creates memories and photos and memorabilia that gets reconsumed for many years. 2. Travel is highly promotable because colorful images of luxurious destinations activate the motivation center of the brain. So, the trip in and of itself is not a bad idea. Offering the trip as the only reward is the bad idea.

The second thing that sales leaders need to be aware of is Availability Bias. Availability bias is the tendency to let things that readily come to mind guide the decision. It's common for someone to drive their new car off the lot and notice that there are many drivers of the same model on the road (something that was not apparent a few days before). This increased awareness comes from the availability bias, not from data indicating there are more cars of that make and model on the road today.

Over the years, some sales managers have exhibited this more than others. In some cases, reps have nicknames such as "the frequency and recency manager" or "the proximity manager." Reps pick up on it. When the reps know that priming the boss with a subtle message the day before the decision is made, it's time to put data ahead of availability. It's fair to place a premium on being hip with the hottest trends but focusing only on what is brand new (or mentally available) can lead to ignoring relevant data.

Anecdote

A sales VP who recently obtained his motorcycle license insisted that the top performer in a quarterly contest would earn a Harley Davidson motorcycle. He even expressed his excitement to his regional sales leaders saying, "Owning a Harley is like a ticket to freedom! Everyone should have access to it!"

Even after being reminded that only 15% of the US population has a motorcycle license, he insisted that it be rewarded only to the top performer. Fortunately, the incentive rules allowed for any rep that achieved above-baseline results would earn an award; the motorcycle was additive for the top performer only.

The contest ran and concluded. Nearly 50% of the reps achieved above-baseline results and received their rewards. Finally, the top performer was named and she graciously accepted over the phone. However, she was not interested in motorcycles because her brother had been killed on one a few years earlier. She painfully acknowledged the "reward" from her boss and the VP without fuss, but quickly turned around to sell it (at a significant loss from the value she paid taxes on). It's fair to say that the motorcycle had nothing to do with the results that she delivered. It's also fair to say that her experience was unique and unlikely to be replicated; however, why take the chance on a risky reward?

PRO: Use a single reward for a top performer in conjunction with other awards and make sure other reps notice the additional (as long as it is suitable) reward is only available to the top performer.

CON: Used alone, a single reward is a waste of budget. Even if the top 2 or 3 reps are very close in their performance and you're hoping for a competitive run-off among them, a single reward is unlikely to spur enough value to justify the budget required for a meaningful award.

About the Author

Tim Houlihan is the founder and chief behavioral strategist of BehaviorAlchemy, LLC, a consultancy using a behavioral lens for improving the actions of workers, customers and policymakers. He co-founded Behavioral Grooves, a meetup and podcast with listeners in more than 80 countries. Previously, Tim was Vice President of Reward Systems at BI WORLDWIDE where he was responsible for a $300 million global portfolio of reward systems, acted as the firm's thought leader in behavioral sciences and was the chief liaison to research partners around the world. Tim believes people underestimate the role of the unconscious in our behaviors. The application of good behavioral science can remedy that.