Rethinking Rewards

Posted on by Chief Marketer Staff

According to a study released earlier this year, the right incentive programs can boost performance among teams of employees by as much as 44%, and among individual workers by as much as 25%.

Drawing on data from 2002-2003, the study by the Washington, DC-based International Society for Performance Improvement found that, when assembled effectively, on-the-job incentive programs can be a major factor in employee motivation and business success.

So what goes into the “right” incentive programs? At the top of the list has to be metrics that prove their value. Despite the $100 billion-plus U.S. organizations pumped into incentive programs last year (according to estimates by the SITE Foundation, New York City), many bosses question just what value they get for the significant investments they make in such programs.

To structure and then deliver effective incentive programs, management has to do much more than shop for the ideal coffee mug to perch on each desk. Rather, it must work hand in glove with its human resource teams to bridge the gap between performance and reward.

Earlier this year, the Forum for People Performance Management and Measurement released the results of its survey, The Interaction Between Marketing and Human Resources. According to the Forum, which is a research center based within the Medill Integrated Marketing Communications program at Northwestern University, there is an alarming gap in communication between these two corporate functions — one that could have a negative impact on organizational performance.

For example, marketing and HR executives disagree about who is the company’s own key customer contact, according to survey results. This raises a red flag because frontline employees may not communicate, or even know, key messages developed by marketing executives and communicated externally via advertising, public relations or direct marketing.

“There is now proof to support what smart business leaders intuitively know: Alignment between marketing and HR is critical to a company’s financial performance,” says Francis J. Mulhern, Ph.D., associate professor and chair of Northwestern University’s Integrated Marketing Communications graduate program. “Companies that implement strategic integrated marketing efforts focusing on internal customers (a.k.a. their employees) while targeting external consumers will, in the long run, outperform companies that don’t.” Strong-performing companies report significantly higher scores on marketing integration than do low market performers, he says.

The survey of 175 corporate managers was conducted in late 2003 to determine the relationship between marketing and human resources functions in motivating the behaviors of customer-contact employees and the impact of that behavior on organizational performance.

Among the Forum’s key findings in its research were:

Almost 70% of respondents either agree or strongly agree that “the marketing and HR departments work independently of each other.”

Sixty-five percent of respondents disagree or strongly disagree that “marketing and HR personnel spend time discussing customer needs and share information with each other.”

There is wide disagreement between the HR and marketing participants in the survey on who the most important customer contact employee is. Not too surprisingly, marketing executives see sales reps as the most important contact person (46%), with customer service reps a close second (42%). HR, however, reports a very different ranking, with 73.5% naming customer service reps as the most important and only 20.5% naming sales reps.

HR and marketing executives tend not to work together to motivate customer contact personnel. The survey confirms that doing so could help the bottom line; high market performers are more likely to incentivize their employees for achieving customer satisfaction than low market performers.

Only 18% of respondents agree and 9% of respondents strongly agree that “HR and marketing personnel work together to motivate those with customer contact .”

Lack of internal communication about customer satisfaction is prevalent.

Just 50% of respondents agree or strongly agree with the statement “Information of customer satisfaction is disseminated at all levels of the company.” This further underscores the lack of communication between marketing and HR.

The Forum also investigated a number of other organizational attributes, including the importance of top management’s customer orientation, the most valued communications tools for customer-contact employees, the most useful employee performance evaluation tools, the most effective motivational tools for top performance, and the value of an open, networked corporate culture to predict overall performance (see charts).

Organizations clearly have a lot of room for improvement when it comes to the communication between their marketing and human resources groups. “The disconnect between these two functions needs to be explored further since it could have serious repercussions on training, resource allocation and job placement,” Mulhern says.

For example, if human resources management and marketing can not agree on defining key customer contact employees, their ability to cooperate on integrated marketing strategies that involve both external and internal markets is at risk and the resulting financial impact could be devastating.

Just recently, the Forum worked with researchers at Purdue University, who uncovered an indirect connection between “back-of- store” employees, who have no customer contact, and positive results from good incentive programs. That research team found a direct link between employee satisfaction and customer satisfaction, as well as a link between customer satisfaction and financial performance.

“We’re still studying whether this ‘downstream effect’ was due to a better overall workplace culture or some support aspect for the front-line employees, but the findings are intriguing,” says Charles Cozzani, director of the Forum. “It seems likely that companies with ‘engaged’ employees have customers who use their products more. It’s clear that it’s an organization’s employees who influence the behavior and attitudes of customers — and its customers who drive an organization’s profitability through the purchase and use of its products.”

And profitability is compelling motivation for most executives.

For more research on Premiums & Incentives, visit www.promomagazine.com later this month for highlights of PROMO’s proprietary research conducted this past summer among its readers on the tactics, budgets and priorities underpinning P&I programs for both workplace and consumer audiences.

Objectives for employee incentive programs
Most important 2nd Most important
Exceeding sales goals 47% 32%
Customer satisfaction 39% 34%
Serving customers well 39% 45%
Acquiring customers 35% 28%
Retaining customers 33% 29%
Cross-selling other products 31% 21%
Source: All charts are from Forum for People Performance Measurement & Management
What types of incentives are used among all employees?
Recognition awards 29.5%
Bonus 26%
Promotion 14.3%
Commission 10.5%
Merchandise 9.4%
Travel 4.9%
Other 4.3%
Which incentives are given to ‘front-line’ employees with most customer contact?
Bonus 32%
Commission 12%
Recognition award 33%
Promotion 14%
Merchandise 5.5%
Travel 3.5%

Rethinking Rewards

Posted on by Chief Marketer Staff

According to a study released earlier this year, the right incentive programs can boost performance among teams of employees by as much as 44%, and among individual workers by as much as 25%.

Drawing on data from 2002-2003, the study by the Washington, DC-based International Society for Performance Improvement found that, when assembled effectively, on-the-job incentive programs can be a major factor in employee motivation and business success.

So what goes into the “right” incentive programs? At the top of the list has to be metrics that prove their value. Despite the $100 billion-plus U.S. organizations pumped into incentive programs last year (according to estimates by the SITE Foundation, New York City), many bosses question just what value they get for the significant investments they make in such programs.

To structure and then deliver effective incentive programs, management has to do much more than shop for the ideal coffee mug to perch on each desk. Rather, it must work hand in glove with its human resource teams to bridge the gap between performance and reward.

Earlier this year, the Forum for People Performance Management and Measurement released the results of its survey, The Interaction Between Marketing and Human Resources. According to the Forum, which is a research center based within the Medill Integrated Marketing Communications program at Northwestern University, there is an alarming gap in communication between these two corporate functions — one that could have a negative impact on organizational performance.

For example, marketing and HR executives disagree about who is the company’s own key customer contact, according to survey results. This raises a red flag because frontline employees may not communicate, or even know, key messages developed by marketing executives and communicated externally via advertising, public relations or direct marketing.

“There is now proof to support what smart business leaders intuitively know: Alignment between marketing and HR is critical to a company’s financial performance,” says Francis J. Mulhern, Ph.D., associate professor and chair of Northwestern University’s Integrated Marketing Communications graduate program. “Companies that implement strategic integrated marketing efforts focusing on internal customers (a.k.a. their employees) while targeting external consumers will, in the long run, outperform companies that don’t.” Strong-performing companies report significantly higher scores on marketing integration than do low market performers, he says.

The survey of 175 corporate managers was conducted in late 2003 to determine the relationship between marketing and human resources functions in motivating the behaviors of customer-contact employees and the impact of that behavior on organizational performance.

Among the Forum’s key findings in its research were:

Almost 70% of respondents either agree or strongly agree that “the marketing and HR departments work independently of each other.”

Sixty-five percent of respondents disagree or strongly disagree that “marketing and HR personnel spend time discussing customer needs and share information with each other.”

There is wide disagreement between the HR and marketing participants in the survey on who the most important customer contact employee is. Not too surprisingly, marketing executives see sales reps as the most important contact person (46%), with customer service reps a close second (42%). HR, however, reports a very different ranking, with 73.5% naming customer service reps as the most important and only 20.5% naming sales reps.

HR and marketing executives tend not to work together to motivate customer contact personnel. The survey confirms that doing so could help the bottom line; high market performers are more likely to incentivize their employees for achieving customer satisfaction than low market performers.

Only 18% of respondents agree and 9% of respondents strongly agree that “HR and marketing personnel work together to motivate those with customer contact .”

Lack of internal communication about customer satisfaction is prevalent.

Just 50% of respondents agree or strongly agree with the statement “Information of customer satisfaction is disseminated at all levels of the company.” This further underscores the lack of communication between marketing and HR.

The Forum also investigated a number of other organizational attributes, including the importance of top management’s customer orientation, the most valued communications tools for customer-contact employees, the most useful employee performance evaluation tools, the most effective motivational tools for top performance, and the value of an open, networked corporate culture to predict overall performance (see charts).

Organizations clearly have a lot of room for improvement when it comes to the communication between their marketing and human resources groups. “The disconnect between these two functions needs to be explored further since it could have serious repercussions on training, resource allocation and job placement,” Mulhern says.

For example, if human resources management and marketing can not agree on defining key customer contact employees, their ability to cooperate on integrated marketing strategies that involve both external and internal markets is at risk and the resulting financial impact could be devastating.

Just recently, the Forum worked with researchers at Purdue University, who uncovered an indirect connection between “back-of- store” employees, who have no customer contact, and positive results from good incentive programs. That research team found a direct link between employee satisfaction and customer satisfaction, as well as a link between customer satisfaction and financial performance.

“We’re still studying whether this ‘downstream effect’ was due to a better overall workplace culture or some support aspect for the front-line employees, but the findings are intriguing,” says Charles Cozzani, director of the Forum. “It seems likely that companies with ‘engaged’ employees have customers who use their products more. It’s clear that it’s an organization’s employees who influence the behavior and attitudes of customers — and its customers who drive an organization’s profitability through the purchase and use of its products.”

And profitability is compelling motivation for most executives.

For more research on Premiums & Incentives, visit www.promomagazine.com later this month for highlights of PROMO’s proprietary research conducted this past summer among its readers on the tactics, budgets and priorities underpinning P&I programs for both workplace and consumer audiences.

Objectives for employee incentive programs
Most important 2nd Most important
Exceeding sales goals 47% 32%
Customer satisfaction 39% 34%
Serving customers well 39% 45%
Acquiring customers 35% 28%
Retaining customers 33% 29%
Cross-selling other products 31% 21%
Source: All charts are from Forum for People Performance Measurement & Management
What types of incentives are used among all employees?
Recognition awards 29.5%
Bonus 26%
Promotion 14.3%
Commission 10.5%
Merchandise 9.4%
Travel 4.9%
Other 4.3%
Which incentives are given to ‘front-line’ employees with most customer contact?
Bonus 32%
Commission 12%
Recognition award 33%
Promotion 14%
Merchandise 5.5%
Travel 3.5%

More

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