A short overview of how organizations can impact the motivational power of their incentive compensation through a few key design principles. A few key tips for anyone who creates incentive programs or contests.

1. How Can You Impact Motivation through Incentive Plan Design Kurt Nelson 2009

2. Locus of Control The more individuals perceive that they are in control, the more motivation they will have (Rotter, 1966). Incentive plan structures need to ensure that employees feel that they are in control of their destiny. Incentive plans or incentive measures that decrease perception of control can significantly undermine motivation. Research shows sales people will attribute success or failure on either internal or external factors – the more external factors are involved, the less motivation occurs. Self-efficacy beliefs can drive performance (Bandura, 1997). Performance not rewarded decreases perceived self-efficacy and can hurt long term performance.

3. Goal Setting Locke and Lathum (1990, 2004) highlight how goal setting can increase performance. Incentive plans can leverage this by utilizing specific goals in their structure. Goal Based Plans provides individuals with key performance goals that increase motivation. Goals need to be perceived as attainable and fair to be effective.

4. PerceivedFairness Perceived lack of fairness of an incentive plan is the number one complaint of sales representatives (BI, 2009). Changes to plans that decrease the perception of fairness can have significant negative impact on performance and overall plan satisfaction. Incentive plans need to ensure that differences between territories or roles be explained and that people understand why they are different.

5. Reward Expectancy theory highlights that motivation is driven by expectations – is my effort worth the reward. Employees are always looking at how this equation is playing out for them and for others. Effort vs. Reward is relative. Equity theory shows that if individuals believe that by exerting the same effort they will get a lesser reward than in the past, they will be less likely to exert the effort.

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