January 13, 2010

The Urge To Splurge

By Malcolm Fleschner

Savvy sales managers know that to genuinely motivate top performance they need to dangle sales incentive rewards that make sales team members all but salivate with excitement. But which prizes are going to work best with any given sales team? Thinking logically, many sales managers figure the best way to find out is to put this question to the salespeople themselves. So what answer do salespeople typically give? Cash. Yet as research and anecdotal evidence from the field invariably shows, cash often is a poor motivator, particularly when compared with desirable rewards of equal value.

So what gives? In examining this seeming incongruity, Scott Jeffrey, assistant professor of management sciences at the University of Waterloo in southwestern Ontario has discovered that when it comes to creating effective incentives, what salespeople say they want and what inspires them to achieve higher performance often are very different indeed.

Writing recently in SalesForceXP Magazine, Jeffrey references a study conducted at the University of Chicago in which participants were offered incentives for solving word puzzles. One group was offered cash prizes for performing well; the other group was rewarded with coupons for therapeutic massages of varying durations. The massage coupons had market values roughly equal to the cash rewards.

After the task was completed, when participants working for noncash awards were asked whether they would prefer to receive the cash instead of the prize 78%said yes. Jeffrey observes that this response is perfectly rational because the cash can be spent on a limitless number of options, whereas the coupons only were good for massages.

Despite the clear preference for cash expressed by study participants, however, the results showed that noncash incentives delivered better results. Compared to a control group that was not offered an incentive, the cash-motivated participants performed 14.6% better. Those offered the massage coupons achieved substantially better results, however, outpacing the control group by 38.6%.

According to Jeffrey, the reason for these differing results has to do with the interrelationship between motivation and a prize’s justifiability. When incentive program participants view the reward being offered as a splurge they can justify working harder to obtain the prize though they likely would feel guilty about spending money for the same item or service.

Jeffrey says the results of the study are instructive, for incentive managers. When selecting incentive prizes, managers need to look for rewards that participants consider luxuries – commodities or experiences that are viewed as desirable but which sales reps would be reluctant to purchase for themselves.

Ask participants what they want, he adds, and they’ll almost all say cash. As a manager designing incentives, however, your task isn’t to find out what they want – it’s to determine what they’ll work hardest for.