Incentive programs are an important tool for achieving strategic goals but require careful planning and implementation. Incentives should be designed to support key performance indicators and departmental objectives aligned with the company's overall strategy. The type of incentive, whether individual or team-based, short-term or long-term, needs to motivate the intended recipients. In addition, processes may need reengineering before incentives are introduced to improve results without undue costs. Ongoing evaluation is also crucial to ensure incentives remain effective and fair over time.

1. Improving Business Performance Through Incentives
A well-defined strategy does not start and stop the at the company level. Many
Wholesale Distributors have developed a strategic vision which defines their key
objectives for the near future, often three to five years. However, the strategy
does not go far enough in defining key departmental goals, initiatives,
performance measures, and activities necessary to execute the company vision.
Often a “disconnect” exists between company strategic goals and objectives and
departmental goals and objectives. For example, a company objective of
improving revenue 2-4 percent yearly may require, as one departmental
objective, the implementation of incentives designed to enhance performance
Incentives support the achievement of KPI (key performance indicators) targets.
The question becomes, “what type of incentive is best to achieve the desired
result?” If the incentive is individually based instead of team….the team may
not pull together to reach the desired result….if the incentive is too long term,
the team may not believe the effort is worth the incentive….if the incentive is not
“valued” by the team or individual the desired result will certainly not be
achieved. Incentives can also have a negative influence. For example, companies
that have installed incentives and have had to subsequently eliminate or reduce
the incentive for financial reasons, often find that morale is lower than before the
incentive was installed which can lead to higher incidences of turnover and
lower productivity. Moreover, financial incentives implemented at the executive
level may promote a “short-term” mentality while overlooking longer-term
benefits to the organization.
Another common pitfall is the implementation of an incentive before
reengineering of processes within the department where the incentive is in effect.
While the net result may very well be an increase in revenue, revenue may have
been enhanced through process improvements resulting in higher operating
profit since sales increases without incurring the cost of an incentive program.
Reengineering processes after the implementation of an incentive program may
dramatically increase costs above targeted cost per unit goals. This occurs when
incentives are already paid, significant productivity improvements occur and the
employee begins reaping a windfall from the process or procedure change.
Incentive programs are not sustainable without on-going scrutiny. Validation of
results, quality control, fairness, cultural integration and achievement of desired
results must be periodically evaluated. Obviously, this often adds a layer of cost
which must be added to the cost of the incentive to objectively evaluate program
costs versus benefits achieved. However, this typically does not negate the fact

2. that incentives can and do play an important role in achieving a desired result,
most often an improvement in operating profits.
Incentives are typically easier to implement and administer in departments
subject to few extraneous variables. For example, an employee working in a
warehouse picking cases of beverage daily would be simpler to assign an
incentive than a sales person working in the market. The market may be subject
to demographic shifts, competitive factors, pricing strategies, legislative actions,
internal factors, and a whole host of other variables which can affect performance
in either direction, up or down. When this occurs, the incentive program must
be reevaluated.
Internal to the incentive program is the frequently asked question, “should
management determine the activities that drive performance and base the
incentive system on those activities, or should the incentive system be based on
selected goals and objectives, thus allowing the employee flexibility in
determining the activities which will allow them to achieve the desired result”.
For example, should a sales persons incentive be based on an activity, such as the
number of new promotional sets completed or on the goal of increasing share
points within a given market or territory? The answer may rest with the quality
of the sale force or with management if the true drivers of performance can be
determined.
Finally, behaviors will undoubtedly change with the introduction of an incentive
system. Therefore, a discussion of the desired behaviors should occur and
concepts evaluated before completing the incentive system design. Both internal
and external customer service may deteriorate if the incentive system is not
balanced between the needs of the employee, customers, management, and the
company’s image in the market place.
About the Author
Patrick Jones is Managing Partner and Co-Owner of The GARR Consulting
Group based in Atlanta Georgia. The GARR Consulting Group is a multi-
disciplined firm focusing on assisting wholesale distributors and retailers
improve profitability. Mr. Jones has extensive experience in the areas of
operational improvement, strategy articulation, organizational structure,
customer service and HR programs. Mr. Jones can be reached at 256-682-3510.