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Even Top Companies May Have A Faulty Incentive Program

By March 16, 2018 No Comments
Faulty Incentive Program

The Wells Fargo imbroglio in 2016 is fresh in our minds. The bank’s managers did what most finance firms did to increase their revenue: setting targets for employees to convert existing account holders to open another account, take out a credit card, or buy other services. Its employees achieved their targets, yes. Future looked good for the bank. In fact, it was only practicing the incentive program commonly followed in the industry, and Well Fargo was besting the competition. After a period of five years or so, the bank’s leadership team found something amiss. Soon, the entire banking sector began to reel from the embarrassing revelation: The Wells Fargo employees created more than 1.5 million unauthorized deposit accounts and 500,000 unauthorized credit card applications. It took a long time for the board to realize that its incentive program gave rise to undesirable consequences. It showed how employee incentives even when paved with good intentions could go awry.

Do rewards really work?

When it comes to rewarding people, measurement parameters do not often work to bring about the necessary change. Incentives often go wrong, but they work only when certain factors are prioritized over others. Studies have revealed that companies focusing only on extrinsic motivation does not improve performance. Remember, extrinsic motivation is driven by external rewards such as money, grades, and recognition. It would be best if companies first focus on intrinsic motivation, and then on extrinsic motivation. Intrinsic motivation refers to inherent behaviors that influence a person.

The following rules would stand in good stead when you are putting in place your next rewards program:

  1. Reward behaviors, not outcomes. This is the top criteria for rewarding employees. Remember that associating rewards to performance often undermines critical factors that emphasize hard work and effort.
  2. Do not assure your staff about rewards in advance. It is important to give rewards at unexpected times. This act ensures that people do not focus on the reward and change their intentions.
  3. Do not promise huge rewards. Although people do anticipate rewards, it would be best to keep the rewards small, achievable and—most importantly—memorable. It must be different from the previous reward given to another employee.
  4. Ensure to give away rewards continuously. In other words, do not try to pin to much hype on the reward that it alters or glosses over the employee’s other inadequacies.
  5. Give away rewards publicly. It is important that all staff should know what work is appreciated and why.
  6. Make it a habit to reward peers. Only peers know well which of their colleagues deserve a compliment, so it makes better business sense to reward them.

Although it is not always that incentives linked to performance turn perverse, the potential always exists. In the Wells Fargo case, the disaster struck due to unrealistic goals. It is important for organizations to re-look their incentive program to boost employee productive inside out.

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