“They aren’t working at Barneys for the money. They’re
working there for discounts and the access to stuff,” Houlihan
says. He knew instantly that the incentive program would be
successful. Participants earned points for selling specific brands
and could redeem those points for high-end merchandise.
“It had nothing to do with money. They didn’t need more
money,” he says.
It’s a good bet that high-earning sales reps on your team
are in a similar situation. Many companies assume that
salespeople making six-figure salaries are driven by money
and will respond best to cash incentives. Houlihan respectfully
disagrees.
“I don’t doubt that more cash will get more performance, but
how much more? The really big changes in performance come
when you offer something other than money,” he says.
Lock in on luxury
Why does a $2,000 gas grill motivate a top-performing
salesperson more than a $2,000 bonus? Two words: hedonic
luxuries.
As reported in our cover story last fall (“Why Cash
Incentives Fail” is available on our Web site), people are hesitant
to spend money on non-essentials even if they earn a substantial
income. Behavioral economists have long known that consumers
often experience an immediate “pain of paying,” which can
weaken the pleasure derived from consumption or discourage
purchases altogether.
BI creates incentive programs for companies worldwide.
Less than 1 percent of participants earn $5,000 or more in
AwardperQs points, but the overarching concept of motivating
with luxuries works across the board.
“We’re all hardwired the same,” says Houlihan. “No matter
how much you make, there’s something that everybody wants
that they won’t buy for themselves.”
Incentive pay earned for hitting a predetermined quota
typically is lumped in with overall salary and used to pay bills
or stuffed into savings accounts. There’s little “halo value” to the
award, which explains why, in Houlihan’s words, cash can
only buy a certain amount of extra effort.
Indeed, research by Ran Kivetz, a professor of marketing at
Columbia University Graduate School of Business, shows that
a significant number of people (as much as 39 percent) will
“precommit” to indulgence by selecting a luxury item as a reward
over a cash amount of equal or greater value. It makes sense,
many incentive experts argue, to lock your program participants
into the luxury category and not provide a cash option.
“People are willing to work harder for hedonic luxuries,”
Kivetz says. “When they start thinking about dollars, they
become more rational, more economical and less willing
to work for it.”
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Energized by
Exclusivity
Some sales managers settle for cash incentives because they
figure they can’t select what will motivate their high earners.
Tim Houlihan says they’ve got it half right. You can’t predict
what energizes each salesperson, but it’s unlikely to be more
money.
“If you’re a mortgage banker on Wall Street, I’m not going
to be able to pick an item for you that you’re necessarily
going to want. But I can show you a whole basket of luxuries
and something is bound to spark your interest,” he says.
Initially, clients are concerned that their high-salaried
salespeople won’t find that basket of awards motivating.
Oftentimes, Houlihan counters, it’s not the dollar value
of incentives offered through programs, but rather their
exclusivity. One company took its top-gun salespeople to fly
MiGs over Moscow; others have provided award-winners
private audiences with celebrities or behind-the-scenes tours
they couldn’t experience on their own.
MiGs over Moscow
and other exclusive awards
REPRINTED WITH PERMISSION FROM SALESFORCEXP MAGAZINE. COPYRIGHT 2006. MACH1 BUSINESS MEDIA, LLC.
