Why Incentives Are a Key to Surviving Tight Safety Budget Challenges
I continue to conclude that non-cash incentive programs are a strategic tool to economically and effectively maximize effectiveness of any ES&H goal set.
- By Sean Roark
- Sep 01, 2015
From time to time, in most businesses there will be a pronouncement along the lines that (a) incentive programs don't work for safety or, (b) they aren't effective, or, best of all, (c) incentives can mess up a good safety program. This is typically asserted by the executives (line level or higher) who are trying to control budget costs. The old reliable warhorse phrase, "Well, people are supposed to be safe, aren't they? That's what they get paid for!" gets trotted out and run around the track a few times. Generally, the higher placed the executive making the pronouncement, the more polite applause can be heard from the nervous staff.
The only problem with this is, none of these hypotheses are supported by extensive studies or common sense. There is a fundamental management lesson in play here. To make my case for the strategic value of incentives as a tool for managing a tight budget, I must digress to ensure you, valued reader, are on the same page as I am about the significant difference between compensation and incentives.
When an HR department prepares a compensation package, it typically comes with a list of things the employee must do (achieve sales goals, be on time, behave ethically) in order to receive a certain amount of money and other tangible benefits (such as health insurance and vacation time), and it almost always has a list of things that an employee must not do (misbehave, underperform, fail to keep agreements) or risk losing some or all of the compensation.
Well-designed incentive programs are different from compensation. Incentive programs are vehicles used to deliver appreciation, gratitude, or motivation to the recipient. Where compensation arrangements are generally black and white and seek stringent guidelines, incentive programs are generally more empathetic and seek to create a positive emotional connection with the recipient.
In his bestselling book "Drive: The Surprising Truth About What Motivates Us" (2009), Daniel Pink reports findings that "As long as the task involves only mechanical skill, bonuses worked as they would be expected: the higher the pay, the better performance." So if a worker's job is turning a crank, then you can directly reward him proportionally for turning the crank faster. This is very useful to us in a world where budgets are being slashed. We can use an incentive to motivate people toward performing any mechanical skill. By offering an incentive, a company can measurably increase productivity, which will produce an ROI.
In a recent study done by the Incentive Research Foundation it was determined that around 60 percent of Americans actually prefer non-cash incentives (2015). When we combine this with the demonstrable fact that non-cash awards are significantly cheaper than cash awards (a common finding is that they are about three times less expensive to create an identical result), it becomes clear that in these mechanical instances, incentive programs can be even more beneficial in a company that is trying to manage its budget.
Pink then stipulates further that the three factors that most affect productivity in situations requiring cognitive ability are "autonomy, mastery and purpose." Essentially, people want to feel like they are able to self-direct their work (autonomy); they desire to get better at what they do (mastery); and they want to feel like they are working toward something larger than themselves (purpose). If one designs a safety incentive program that addresses all three of these needs, the program has a tendency to pay off big.
These three objectives can all be accomplished through an incentive program. Participants can choose where they get to interact and perform (safety meetings, continuing education, emergency response, etc.). They can work through the program to become better at doing their job safely and effectively through certification and training, and the program can communicate its mission, which should extend beyond profit. Rather than motivating an employee to do better, the program will show appreciation and gratitude to an employee for doing the things that he does and drive him to do more of it. This will have a huge effect on your company’s bottom line and will more effectively accomplish these goals by enrolling employees into your vision instead of paying them to do something they don’t have an interest in doing.
Here is how I see the Pink proposition in the case of non-task driven goals (patience, please: this all ties into the topic at hand!): a $200.00 cash bonus given as recognition to a skilled employee working for $25.00/hour is immediately translated in that employee's head as being a day's pay. If the value of what he did is going to save the company a month of work, the recipient will often equate that bonus as being a "slight" rather than a "pat on the back." If that employee instead receives box seats to a sports event or other performance, or other significant experiential gift, he will value it much more as an acknowledgement, even though the cost of the tickets, event, or merchandise gift might be the exact same $200.00! In fact, studies show that to create a specific change in behavior or attitude costs over three times more if cash is used as the reward instead of a non-cash "recognition gift."
So, as promised, here's how this all applies to dealing with budget-cutting times in your safety department. When you find yourself having to limit increases, keep wages steady or (dare I say it?) actually reduce compensation packages, the VERY LAST thing you want to cut back on is the proven best tool for communicating appreciation and engaging employees, i.e., incentives. The effectiveness of incentives as a key performance management tool has been widely validated. Here are some examples:
- In a March 2014 study, the Aberdeen Research Group found that "Best In Class Companies" are 31 percent more likely than all other firms to agree that "Non-Cash Incentives and Rewards are a Vital Component of Performance Management." Laggards are more likely to agree, as well, but research shows these companies are also more likely to use non-cash incentives too late in the process or to plug holes in other organizational or product gaps. Aberdeen also reports that 21 percent of Best in Class organizations highly utilize non-cash incentives, versus 10 percent of all other companies.
- McKinsey and Company's 2009 report "Motivating People; Getting Beyond Money" openly challenges the traditional thinking of cash as the end-all motivator. The report finds strongly in favor of non-cash motivators (including praise from immediate managers) and lists these motivators as being more effective than the three highest-rated financial incentives (i.e., cash bonuses, increased base pay, and stock options).
- California-based Symantec Corporation, faced with the need to increase performance during the economic downturn of 2008-2009, had no available budget for motivating its staff with raises and bonuses. Instead, the company invested in a proactive incentive program using gift cards and peer-level recognition. After two years, as the financial situation improved, in-depth analysis of internal data demonstrated that performance metrics had improved at a significantly higher pace than during the two-year period where financial rewards had been the incentive mechanism.
- One of my clients in the petroleum industry came to me with a significant problem at the beginning of 2014. Anticipated planned budget increases had been cut, and he was afraid of losing momentum in his safety and performance recognition program. We designed a budget-friendly incentive program that allowed for on-the-spot recognition and point-accrual toward larger rewards, but we designed in a heavy emphasis on recognition. Any good deed was brought to the attention of all immediate co-workers and congratulatory comments were routinely posted in the well-trafficked corporate dining restaurant. Looking at budgets for the upcoming year, our client came to the table with a request from upper management as to how this program could be enhanced.
If you want more information on studies and research, I strongly suggest the Incentive Research Foundation, which was the source for much of the research quoted here. In many different scenarios with many different clients, I continue to conclude that non-cash incentive programs are a strategic tool to economically maximize effectiveness of any ES&H goal set. Applying that conclusion to managing budget cuts is simply an added facet of this philosophy that has clarified for me over time. In the face of budget cutting and reduced compensation, I have found time and again that strategic implementation of incentives will not only minimize deterioration in engagement and results, those results can actually be sustained and enhanced at a fraction of the expense that might be required if using cash as the only motivating tool.
So how do you implement this strategy in hard times? First, remember that the cost of using cash to create a change in an employee’s behavior or adopt a best practice is far more expensive (far harder on your constrained budget) as compared to using a non-cash incentive program. Moreover, make sure that any plan for hard times includes the consideration that employees absolutely regard and respond to appreciation and recognition incentives differently (and more positively) than they do to compensation-based awards. A big part of that difference is the perception of being valued and appreciated. Robert Half personnel reported that the number one reason why employees who were satisfied with their compensation left a job was because they believed that they were under-acknowledged. Understanding that recognition and motivation is a multiplier to a compensation package will help you to realize the strategic importance that incentives play in communicating a positive corporate relationship with an employee, especially when financial options are scarce.
This article originally appeared in the September 2015 issue of Occupational Health & Safety.