1.
Leveraging New Motivational Theory and Behavioral Economics
Principles to Build Your Sales Compensation Framework: A Case Study
Kurt Nelson, PhD The Lantern Group
James Brewer Eli Lilly and Company

2.
Topic Areas
Situation
Motivational
Theory &
Behavioral
Economics
Applying
theory to
reality
What You
Can Do

3.
3
We started on a Journey…
3-year process
Build a R&R framework
Utilize behavioral economics &
motivational theory
Meet changing market &
business dynamics

4.
4
Bio-Medicines Business Unit
(2011/2012)
$12+
Billion
10
products
4 sales
divisions
Changing
Market /
Business

5.
Motivational theory
The Four Drive Model of
Employee Motivation
Lawrence & Nohria
We brought in a research model that combines both extrinsic and intrinsic motivators
into one holistic model – to find out more on this model, see “4 Drives a simple story
about motivating employees”

6.
4 Drive
Model
of Employee
Motivation
Acquire & Achieve
Driven to acquire
things, resources, pleasures and
status
Bond & Belong
Driven to create positive
relationships, engage, and “fit in”
Create & Challenge
Driven to attain
mastery, learn, improve and create
Define & Defend
Driven to defend
status, ideas, relationships and
define purpose

7.
7
Comparing to AMP
AMP
Autonomy
Mastery
Purpose
4 Drive
Acquire & Achieve
Bond & Belong
Create & Challenge
Define & Defend

8.
Behavioral economics
Homo Economicus
or
Homo Sapien?
We incorporated some behavioral economics principles into our design

9.
Global thinking
Well-defined preferences
Decisions maximize all alternatives
Rational
Pursues monetary wealth
Homo Economicus

10.
Emotional
Trouble with long division
Forget loved-one’s birthday
Eats donuts
Subject to guilt, fairness, social
comparison, desire for luxury
Homo Sapien

11.
The Do-Say Problem
A key behavioral insight - we often ask people what they want, but
they respond with their rational selves (what should I want or
what do they want me to say) BUT when they actually do something
it is driven by their emotional side…

12.
Behavioral Economic Principles
Relativity (internal equity)
- Concept: we judge a thing based on how it compares to others (pond effect &
drive to save)
Reward & recognition applications:
- Reps compare new plan to last year’s plan (or best plan) – need to account for
this through communication process
- Reps compare their payout to peers (highest vs lowest) – need to ensure
perception of fairness
Social pressure (in-group)
- Concept: being part of a team applies social peer pressure (competing with
social loafing)
Reward & recognition applications:
- Team goals can work if applied appropriately – they can be very powerful
motivators
- Peer ratings can be harmful if they detract if they make individuals focus on
how to beat their peers and not the competition

13.
Behavioral Economic Principles
Progress principle
- Concept: we are motivated by small progress (incremental gain)
Reward & recognition applications:
- Recognition of small gains (milestones) should be used
- Length of measurement period is important in developing plans
Hedonic luxuries
- Concept: we are motivated by hedonic luxuries (self-image construct –
hedonic preference not stated in survey’s)
Reward & recognition applications:
- Travel and merchandise awards can drive significant behavior change above and
beyond cash

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Our Approach
We developed the incentive strategy using a
structured approach.

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15
We started with a
behavioral audit
Leadership interviews
IC audit
Behavioral interviews
On-line focus groups
Motivational mapping

16.
We Identified Desired Outcomes
3
Deliver exceptional
customer
experiences
1
Act with a business
ownership mindset
2 3
Focus on the greater
good

17.
We found…
Singular focus on drive to Acquire & Achieve
Current programs did not drive desired behaviors
Costs that could be reduced

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We built framework for
Reward & Recognition
Reward &
Recognition
Components
Incentive
Compensation
Other
Recognition
Non-CashTrips
The framework is simple, but it aligns with the 4-drives and behavioral economic
principles

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19
Reward &
Recognition
4-Drive Alignment
Other
Recognition
Trips Non-Cash
Incentive
Compensation

20.
Outcomes of change
72% of say
teamwork
improved
77% of say
changes will
improve Business
Ownership
All four
motivational
drives leveraged
Significant
processing &
bundling savings
62% feel that
customer value is
improving

21.
1. Leadership interviews
“What are the specific behaviors that we need to be successful in the future?”
2. IC audit
Review ALL R&R Programs – strategic imperative, participation %, measurement
criteria and costs
3. Behavioral interviews and/or focus groups
Focus on what are the behaviors that the specific programs are driving – probe deep
(outside interviewer / facilitator)
4. Motivational mapping
Map individual programs to 4-Drives
5. Gap analysis
Assess where there are gaps in the motivations and in the behaviors
How to do a Behavioral Audit

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1. Involve up-front
- Leadership interviews
- One-on-one updates
- Pre-reads
2. Provide both theoretical and real-world evidence
- ½ day retreat
- Expert consultation
3. Keep leadership/field updated through advisory team
- On-going input / feedback through advisory team members
- Advisory team assignments
4. Involve in solution
- Provide limited choices
Leadership buy-in Insights

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1. Adversity to change
- People are adverse to change
- Relativity principle (always compare to last program)
2. Differences in leadership acceptance / buy-in
- Finance vs. sales perspective
- Alignment with motivational and behavioral principles
3. Communication
- Lack of understanding of changes / why
- Lack of buy-in to changes
Potential Roadblocks

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Questions or more info – please contact:
Kurt Nelson, PhD
kurt@lanterngroup.com
www.lanterngroup.com
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