Automotive Training & Consulting

How Not to Run an Incentive Program

I recently watched the Freakonomics Movie on Netflix.  The chapter on Bribing Students in 9th grade to improve their scores reminded me of a lot of incentives that I have seen dealerships and manufacturers run – with similar results.

In the movie, the University of Chicago approaches a high school in Chicago and offer to run an experiment providing financial incentives for students in 9th Grade who achieve and/or maintain a C score or better in all their subjects.  For each month the students achieve that, they get $50.   For all qualifying students, there is also a lottery where they can win $500 and a ride home in a Hummer limousine.

In my ten years in retail, in several dealerships representing different automotive brands, it was a scene I saw played out repeatedly.  Either the manufacturer, or more often, the dealership, would be under pressure to move units and would introduce a financial incentive for the salespeople.  Most incentives ran for several months – some ran shorter, some ran longer.

The odd thing that (you may have seen as well if you work with salespeople) was that a few salespeople who were the top salespeople in the sales team would get to work and, predictably, compete for the prize.  The same few people kept winning all the competitions.   The rest of the team might get excited early on in the incentive, but their excitement and results would return to their normal levels in the first week.

Even with this evidence clearly on display, there are some Sales Managers who persist with their demonstrably incorrect belief that financial incentive programs work.  I have even heard one very ineffective Sales Manager complain that all salespeople are coin-operated, even while he squandered tens of thousands of dollars on ‘incentive’ campaigns that repeatedly did not work.

Taking it to an extreme example, if you give a ten-year old kid the sum of $50 Million to build you a nuclear reactor, and the ten-year old does not build you a nuclear reactor, would you solve the problem by giving the kid more money?  Would you not check if the kid had the necessary skills, knowledge, experience, resources, habits and desire to build you a nuclear reactor?

Comparing that clearly ridiculous example with a dealership: so many incentives are wasted as a desperate reaction, thrown at sales teams who do not have the necessary:

  • Skills
  • Knowledge
  • Experience
  • Resources
  • Habits
  • Desire

…to achieve the desired result.

Something else that was revealed in several parts of the Freakonomics movie is that providing poorly-planned controls over incentives like this drive a percentage of people to cheat.

One of the students profiled in the 9th Grade experiment had no skills, knowledge, experience, resources, habits and desire to achieve good results at school and was not shown to be given an other way to improve his grades other than just the financial incentive.  He wasn’t taught any study skills, organisational skills, time management skills.  He wasn’t shown how to take responsibility and the action to take to get results.  So the $50 just became sour grapes: he disparaged what he ‘knew’ he could have.

Those people who already wanted to improve had more rewards for improving. Those who didn’t already want to improve gave the incentive program lip service and stayed at the same level of performance or even got worse.

This experiment broke several rules for running successful incentive campaigns that I developed in dealerships and then used successfully when working for Mercedes-Benz.

Before you run an incentive program, assess whether your sales team has the skills, knowledge, experience, resources, habits and desire to achieve the incentive goal.  If they don’t, your incentive program is not only wasting money, it could be getting you a worse result, conditioning most of your team to disengage from incentive programs and building resentment in your team.  Save the money that you were going to waste on the incentives and invest it instead on good training for your sales team.

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