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Leveraging New Motivational Theory and Behavioral Economics
Principles to Build Your Sales Compensation Framework: A Case ...
Topic Areas
Situation
Motivational
Theory &
Behavioral
Economics
Applying
theory to
reality
What You
Can Do
3
We started on a Journey…
3-year process
Build a R&R framework
Utilize behavioral economics &
motivational theory
Meet ch...
4
Bio-Medicines Business Unit
(2011/2012)
$12+
Billion
10
products
4 sales
divisions
Changing
Market /
Business
Motivational theory
The Four Drive Model of
Employee Motivation
Lawrence & Nohria
We brought in a research model that comb...
4 Drive
Model
of Employee
Motivation
Acquire & Achieve
Driven to acquire
things, resources, pleasures and
status
Bond & Be...
7
Comparing to AMP
AMP
Autonomy
Mastery
Purpose
4 Drive
Acquire & Achieve
Bond & Belong
Create & Challenge
Define & Defend
Behavioral economics
Homo Economicus
or
Homo Sapien?
We incorporated some behavioral economics principles into our design
Global thinking
Well-defined preferences
Decisions maximize all alternatives
Rational
Pursues monetary wealth
Homo Economi...
Emotional
Trouble with long division
Forget loved-one’s birthday
Eats donuts
Subject to guilt, fairness, social
comparison...
The Do-Say Problem
A key behavioral insight - we often ask people what they want, but
they respond with their rational sel...
Behavioral Economic Principles
Relativity (internal equity)
- Concept: we judge a thing based on how it compares to others...
Behavioral Economic Principles
Progress principle
- Concept: we are motivated by small progress (incremental gain)
Reward ...
14
Our Approach
We developed the incentive strategy using a
structured approach.
15
We started with a
behavioral audit
Leadership interviews
IC audit
Behavioral interviews
On-line focus groups
Motivation...
We Identified Desired Outcomes
3
Deliver exceptional
customer
experiences
1
Act with a business
ownership mindset
2 3
Focu...
We found…
Singular focus on drive to Acquire & Achieve
Current programs did not drive desired behaviors
Costs that could b...
18
We built framework for
Reward & Recognition
Reward &
Recognition
Components
Incentive
Compensation
Other
Recognition
No...
19
Reward &
Recognition
4-Drive Alignment
Other
Recognition
Trips Non-Cash
Incentive
Compensation
Outcomes of change
72% of say
teamwork
improved
77% of say
changes will
improve Business
Ownership
All four
motivational
d...
1. Leadership interviews
“What are the specific behaviors that we need to be successful in the future?”
2. IC audit
Review...
1. Involve up-front
- Leadership interviews
- One-on-one updates
- Pre-reads
2. Provide both theoretical and real-world ev...
1. Adversity to change
- People are adverse to change
- Relativity principle (always compare to last program)
2. Differenc...
24
Questions or more info – please contact:
Kurt Nelson, PhD
kurt@lanterngroup.com
www.lanterngroup.com
Help us out – it o...
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World at work conference presentation v1

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How we incorporated motivational theory and behavioral economics in helping design a Reward & Recognition framework for a large pharmaceutical company

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World at work conference presentation v1

  1. 1. Leveraging New Motivational Theory and Behavioral Economics Principles to Build Your Sales Compensation Framework: A Case Study Kurt Nelson, PhD The Lantern Group James Brewer Eli Lilly and Company
  2. 2. Topic Areas Situation Motivational Theory & Behavioral Economics Applying theory to reality What You Can Do
  3. 3. 3 We started on a Journey… 3-year process Build a R&R framework Utilize behavioral economics & motivational theory Meet changing market & business dynamics
  4. 4. 4 Bio-Medicines Business Unit (2011/2012) $12+ Billion 10 products 4 sales divisions Changing Market / Business
  5. 5. Motivational theory The Four Drive Model of Employee Motivation Lawrence & Nohria We brought in a research model that combines both extrinsic and intrinsic motivators into one holistic model – to find out more on this model, see “4 Drives a simple story about motivating employees”
  6. 6. 4 Drive Model of Employee Motivation Acquire & Achieve Driven to acquire things, resources, pleasures and status Bond & Belong Driven to create positive relationships, engage, and “fit in” Create & Challenge Driven to attain mastery, learn, improve and create Define & Defend Driven to defend status, ideas, relationships and define purpose
  7. 7. 7 Comparing to AMP AMP Autonomy Mastery Purpose 4 Drive Acquire & Achieve Bond & Belong Create & Challenge Define & Defend
  8. 8. Behavioral economics Homo Economicus or Homo Sapien? We incorporated some behavioral economics principles into our design
  9. 9. Global thinking Well-defined preferences Decisions maximize all alternatives Rational Pursues monetary wealth Homo Economicus
  10. 10. Emotional Trouble with long division Forget loved-one’s birthday Eats donuts Subject to guilt, fairness, social comparison, desire for luxury Homo Sapien
  11. 11. The Do-Say Problem A key behavioral insight - we often ask people what they want, but they respond with their rational selves (what should I want or what do they want me to say) BUT when they actually do something it is driven by their emotional side…
  12. 12. Behavioral Economic Principles Relativity (internal equity) - Concept: we judge a thing based on how it compares to others (pond effect & drive to save) Reward & recognition applications: - Reps compare new plan to last year’s plan (or best plan) – need to account for this through communication process - Reps compare their payout to peers (highest vs lowest) – need to ensure perception of fairness Social pressure (in-group) - Concept: being part of a team applies social peer pressure (competing with social loafing) Reward & recognition applications: - Team goals can work if applied appropriately – they can be very powerful motivators - Peer ratings can be harmful if they detract if they make individuals focus on how to beat their peers and not the competition
  13. 13. Behavioral Economic Principles Progress principle - Concept: we are motivated by small progress (incremental gain) Reward & recognition applications: - Recognition of small gains (milestones) should be used - Length of measurement period is important in developing plans Hedonic luxuries - Concept: we are motivated by hedonic luxuries (self-image construct – hedonic preference not stated in survey’s) Reward & recognition applications: - Travel and merchandise awards can drive significant behavior change above and beyond cash
  14. 14. 14 Our Approach We developed the incentive strategy using a structured approach.
  15. 15. 15 We started with a behavioral audit Leadership interviews IC audit Behavioral interviews On-line focus groups Motivational mapping
  16. 16. We Identified Desired Outcomes 3 Deliver exceptional customer experiences 1 Act with a business ownership mindset 2 3 Focus on the greater good
  17. 17. We found… Singular focus on drive to Acquire & Achieve Current programs did not drive desired behaviors Costs that could be reduced
  18. 18. 18 We built framework for Reward & Recognition Reward & Recognition Components Incentive Compensation Other Recognition Non-CashTrips The framework is simple, but it aligns with the 4-drives and behavioral economic principles
  19. 19. 19 Reward & Recognition 4-Drive Alignment Other Recognition Trips Non-Cash Incentive Compensation
  20. 20. Outcomes of change 72% of say teamwork improved 77% of say changes will improve Business Ownership All four motivational drives leveraged Significant processing & bundling savings 62% feel that customer value is improving
  21. 21. 1. Leadership interviews “What are the specific behaviors that we need to be successful in the future?” 2. IC audit Review ALL R&R Programs – strategic imperative, participation %, measurement criteria and costs 3. Behavioral interviews and/or focus groups Focus on what are the behaviors that the specific programs are driving – probe deep (outside interviewer / facilitator) 4. Motivational mapping Map individual programs to 4-Drives 5. Gap analysis Assess where there are gaps in the motivations and in the behaviors How to do a Behavioral Audit
  22. 22. 1. Involve up-front - Leadership interviews - One-on-one updates - Pre-reads 2. Provide both theoretical and real-world evidence - ½ day retreat - Expert consultation 3. Keep leadership/field updated through advisory team - On-going input / feedback through advisory team members - Advisory team assignments 4. Involve in solution - Provide limited choices Leadership buy-in Insights
  23. 23. 1. Adversity to change - People are adverse to change - Relativity principle (always compare to last program) 2. Differences in leadership acceptance / buy-in - Finance vs. sales perspective - Alignment with motivational and behavioral principles 3. Communication - Lack of understanding of changes / why - Lack of buy-in to changes Potential Roadblocks
  24. 24. 24 Questions or more info – please contact: Kurt Nelson, PhD kurt@lanterngroup.com www.lanterngroup.com Help us out – it only takes five minutes to take our survey on change https://www.surveymonkey.com/s/How-I-changed Thank you

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