By Adam Hayes Updated May 19, Credit card companies are in the business of making money, yet they often advertise incentives that feature rewards such as cash back on credit card purchases. So how can these companies offer such seemingly lucrative deals for consumers and still make a profit?
Store Money for Motivation: How Incentive Based Pay Works Last week I was talking with some folks about using compensation to drive employee behavior, and it occurred to me that I have never shared anything about that topic here. The thing that I would like to note is that these apply to organizations of virtually any size. The other caveat I want to mention up front: money is not always a motivator for everyone.
We want to instantly think that we can drive performance or discourage behaviors through monetary incentives. We have laws of physics.
A Cashless Society? It may seem counterintuitive.
We have theories of motivation. Keep that in mind.
Everyone Needs a Variable Element When it comes to compensation we have two basic elements: base pay and variable pay. Base pay is what someone earns as a condition of their employment.
The most common area we see this in is for sales professionals. How can you implement that? Test, measure, and revise as necessary.
How to Afford It One of the first hurdles I always face when it comes to getting management on board with a compensation change is pretty obvious: Can we afford it? The good thing about incentive compensation that is tied to performance metrics like sales or profitability is yes, you can afford it. The smarter, and less risky, way is to negotiate a purchase price that comes from periodic payments of net profits.
Variable compensation incentive to make money to business performance is the same thing. Your fixed costs base pay will be there always. That, my friends, is how you afford it.
We have to be able to properly measure performance for our staff in order to compensate them appropriately. This is important, because you have to be offering incentives for the right thing. Be careful about that common trap.
Shorten the Distance There are two things that I have observed with incentive compensation that really help to drive results, and they have to do with control and reaction time. Control—the more influence a person has on their work and subsequent performance, the more likely they will work toward the incentives placed before them Reaction time—the less time a person has to wait between the activity and the reward, the better.
making HR better, one HR pro at a time
If you can shorten the distance so employees have more control and a shorter reaction time, the rewards will be more meaningful. Do you currently use incentive based incentive to make money How is it working for you? What types of positions do you use it for?
- Why Incentive Plans Cannot Work
- Cash vs. non-cash incentives and rewards - which motivates better?