What’s a hedonic luxury? That all depends on what’s out of your normal comfort zone. For some employees, it’s that expensive piece of jewelry they’ve been admiring or that new home entertainment system. Maybe, it’s that trip of a lifetime.
I can tell you what it isn’t; a hedonic luxury is not something you have allocated in your monthly budget. In other words, it’s not necessarily something you need, but it is certainly something you want.
In our everyday lives we fantasize about hedonic luxuries, but we don’t normally pursue them. We know it might mean sacrificing something that we really need and that’s not practical. Our cash goes to bill paying or into the bank for rainy days. We’ve been taught to be responsible that way since childhood, inject non-cash into the equation and that mindset gets thrown out the window.
We don’t have to justify spending money on extravagances, we become more attracted to them and therein lay their motivational pull on us. Think about it. Do you really need a high-def. big screen TV, the latest snow board or a trip to Aspen to use it? If the question is asked in the context of spending hard earned money, most people would say, “no, I don’t need it”. Substitute non-cash rewards, however, and people start to dream.
Planners of sales incentives or employee recognition programs who understand behavioral economics know the difference between “wants” and “needs” and they use it to maximize motivational impact. They understand the role “responsibility” and “justification” play in restricting the emotional gratification of things we buy with cash and they get how using non-cash enhances our interest in the things we can redeem through points. We feel guilty and uncomfortable when spending money on ourselves, we get excited about redeeming with non-cash because what we “want” is not what always what we “need”.
I was recently asked to present in front of a large contingent of HR managers at one of our major clients. Specifically, they wanted me to speak about some of the newest trends associated with employee reward and recognition programs.
This company has always been progressive in their thinking. For starters, they never really considered their program to be an expense; instead they have always viewed it as an investment. Like any other investment they recognized that their recognition program must “outperform” in the categories of both economic performance and strategic relevance, especially as their business goals change.
This session was part of that ongoing commitment they made as a team to their executive sponsors, but it’s also a reflection of the on-going value we deliver to our clients. We are committed to raising the conversation surrounding reward programs and the impact they can have on employee engagement and sales results. It’s a large part of our value proposition and a reason why many of our clients value our advice and counsel as much as they do our execution.
Madison’s thought leadership isn’t just for clients, it’s available for any organization that’s wrestling with questions that range from: How can we make our programs more effective in addressing some of the contemporary human capital issues we are facing today? To: How can we do so in a manner that’s more efficient given the cost constraints we are faced with? Simply put, how can we do more and do so for less?
By highlighting the growing emotional impact of non-cash incentives and outlining the principles of behavioral economics, while tying it all around emerging issues like the targeted recognition of top performers, we are showing our clients how to do just that. Wouldn’t you also like to hear what we have to say?
WorldatWork recently commented on the effect of pay-for-performance plans (PFP), reporting that just a small fraction of organizations are satisfied with them. Kerry Chou cited a number of surveys that gave PFP plans less than stellar grades when it came to their performances.
On average, the use of pay-for-performance plans has been increasing in businesses. Today, roughly 4 out of 5 companies have some form of performance based pay system in place. So while many have bought into the concept, the majority also feel that they are not getting the desired rate of return out of them. This raises a question for me: Is it the pay-for-performance concept that’s failing or is it the pay as the principle reward vehicle that’s falling short? My money, so to speak, is on the latter.
Companies that rely on cash alone, but fall into the “unsatisfied” camp may be interested in a study conducted by the team of Shaffer and Arkes out of Wichita and Ohio State Universities. They found that when people make a hypothetical choice between cash and non-cash incentives, cash is indeed preferred by employees. However—and here is the hook—when it’s no longer hypothetical, meaning that when a reward is identified, employees actually performed better in pursuit of it, even when the reward was of equal value to the cash alternative. In other words when an employee focuses on a reward that excites them they become more motivated by the idea of earning it—something that’s not happening with cash payouts.
This satisfaction gap identified by WorldatWork opens a window for companies to consider injecting non-cash rewards as an alternative incentive. Internal advocates of PFP will stipulate that when implemented correctly it does increase employee productivity. No disagreement from me there but with this caveat—only when they have the right reward mix in place. Introducing a non-cash component into a pay-for-performance plan will make it more effective than one with an “all cash” payout.
How important is training to the success of your employee rewards and recognition and sales incentive program? The answer is “very”, especially when you consider two things: 1. Even the best-designed platforms are useless if managers don’t know how to use them and 2. The best intended programs will be underutilized if managers (as well as employees) don’t appreciate why recognizing others is important in the first place.
Let’s face it; everyone in your organization is busy with their normal day-to-day responsibilities, so it’s important that everyone from executive level sponsors to front line managers to employee participants know how to utilize the system. If they don’t, the act of recognition will be perceived as just another task on their plates—one that takes too much time to partake in. At a minimum, program training should familiarize everyone with how the platform works; you want everyone to see how participating in the program is seamless, simple and user friendly.
This helps us with the “how” question, however equally important is the “why”. Behavioral economics teaches us that messages are more likely to be received, understood, and acted upon if they are constructed with the targeted participants in mind. For executive sponsors this may mean an emphasis on understanding the role that reports and diagnostics can play in tracking results. For front line managers it may mean messages that focus on the importance of building trust within a collaborative work team. For employees and sales people it could mean understanding the role they play in sustaining the company’s culture and how the system’s peer-to-peer capabilities can help them do just that.
Your approach to program training can be as important as your rules structure or your reward offerings or any other program component, Don’t overlook it.
In The Race to Excel at Value Based Selling, ZS associates analyze the distinction between value-based sellers and those who are mere information providers. The authors point out several shifts in buying behaviors—trends that cannot be ignored and have redefined how successful b-to-b sellers move prospects from closer to close.
Today’s buyers are tech savvy, they don’t need to call a sales person in order for them to explain features and functions and they don’t need detailers with brochures and marketing materials. All of the information they require is available online. However, what they do need is context, they need to know how the product (or service) will help them meet their business goals.
Notice the plurality of that statement; people are no longer buying in isolation. Committees make buying decisions and value-based sellers consistently work to uncover the needs of each member. They are adept at finding and expanding upon business benefits that impact others across a wide range of disciplines.
The article declares that value based selling, when done correctly, can transform a sales force. But it also goes on to caution that it is not easily adopted, it can be taught of course, but to be fully ingrained into practice it needs to be reinforced. Without reassurance the sales rep will retreat to what’s familiar.
This is where your sales incentive platform comes in. It can help you reinforce the type of selling behaviors that add value and drive success. It helps sales managers to encourage their reps to try new behaviors and to acknowledge them.
Getting people to embrace change is never easy, especially for sales people who are used to a certain style. They need to see how these changes are helping others. Your recognition system can humanize what success looks like when members of the sales team begin to win more.