Designing human-centric incentive plans

ZS wrote the book on incentive compensation. Now we are unleashing motivation for a digital world.

Incentive plans can be catalysts for excellence. They drive employee motivation, performance and engagement. Smart incentives align individual and organizational goals and foster a focused, productive workforce. As technology reshapes industries and workplace expectations shift, well-designed incentive strategies can help companies adapt and succeed.

But what if designing these plans requires more than the data-focused approach we use today? What if communication needs to do more than just inform participants about the plan? In today’s rapidly evolving business landscape, successful organizations must think differently about how they approach motivation and performance.

We’ve reimagined a design process that combines the power of data analytics with workforce analytics, strategic design and creative communications to create a human-centered process—one that might give your organization the edge in a competitive talent marketplace and drive your sales team to greater success. 

Research indicates that well-designed sales incentive programs can significantly boost revenue. For example, McKinsey reports that companies could achieve up to a 50% higher impact on sales from adjusting their compensation models compared to increasing advertising investments​. The Incentive Research Foundation found that sales incentive programs led to a net sales gain of approximately 7.5% in some cases.​​ Additionally, a study highlighted by Harvard Business Review suggests that incentive programs aligned with profitability rather than just sales volume can further optimize financial outcomes.

For many years, designing fair and fiscally responsible incentives using data has been the holy grail of incentive design. The focus has always been on getting quotas as accurate as possible and designing payout curves and commission rates that get the plan payouts as close to the budget as possible. PowerPoint presentations and PDF one-pagers are considered sufficient plan dissemination to participants, and emails are still the most common mode of communication. A recent ZS study found that 70% of respondents do not allow any form of customization in their incentives, with an increase in complexity cited as a key reason.

As we design incentive programs for the workforce of the future, we need to ask questions such as:

• What is our organization’s total rewards philosophy—and how do our incentive plans support it?
• What do we know about the sales force as individuals and what truly drives them to perform better?
• What new data and methodologies are now available to us that can make design analytics even more insightful and holistic?
• What other tools and techniques can help us elevate our communication process and enable us to “speak the same language” as the plan participants?

The figure shows what an updated approach might look like.

The first step to designing incentives that motivate employees is to understand what drives the organization forward. A great place to start is to develop a robust understanding of the company’s mission, vision and core values to grasp the broader context of the culture and business objectives. In-depth interviews with senior leadership are critical for developing a robust understanding—they also help getting leadership buy-in from the start.

Understanding the organization’s talent acquisition, development and retention strategies, as well as internal mobility practices, leadership development programs and recognition systems can provide additional flavor to the assessment. It is also crucial to evaluate the competitive landscape, benchmarking against industry peers to understand where the company stands in terms of salary scales and talent management practices. 

Before delving into the mechanics of an incentive plan, it’s crucial to have a comprehensive understanding of the workforce’s demographics, attitudes and behaviors. This understanding lays the foundation for designing incentives that resonate with employees and drive desired outcomes. Workforce analytics and surveys are powerful tools to gain these insights.

Workforce analytics involve collecting and analyzing data related to employee demographics, skills, performance, turnover and more. This data can be derived from HR information systems, performance management platforms and other enterprise tools. Through analytics, you can identify trends, patterns and correlations that inform the incentive design.

Analytics can also help in understanding the generational makeup of the workforce, which can influence the types of incentives that resonate with different groups. For example, a Society for Human Resource Management study revealed that Generation Z and millennials value recognition in the workplace and are more likely to stay in their roles even when given small rewards.

One-on-one interviews, employee focus groups and surveys can be used to gain qualitative insights into employee attitudes and preferences. Interviews and focus groups can help gain deep insight into the motivators and drivers of behavior—and help employees feel like they are part of the design process. Anonymous surveys allow employees to voice their opinions on current incentive programs, workplace culture and overall job satisfaction. They also offer a platform for employees to suggest improvements and highlight areas where incentives can make a real difference. The analytics on the insights gained through these channels can help us identify perceptions of the current incentive plans (and how they differ by various employee cohorts) and the trade-offs employees are willing to make with their incentives.

Designing effective surveys involves asking the right questions. Consider including questions about employees’ perceptions of fairness, work-life balance, career development and recognition. You can also ask employees to rank different types of incentives, such as cash bonuses, flexible work arrangements, additional time off or professional development opportunities. These responses can guide you in crafting a plan that aligns with employee expectations and preferences.

With products and markets becoming more complex than ever, developing a deep understanding of the brand objectives, target audience and how the marketing team plans on changing customer behavior to help the product succeed is more important than ever. Simultaneously, the role of the rep has also evolved, necessitating redesigned incentives to drive different behaviors.

Research indicates that misalignment between sales and marketing is a common challenge. For example, a 2019 study by LinkedIn found that 93% of sales and marketing professionals believe that poorly aligned teams negatively affect business growth, yet only 23% of respondents reported strong alignment between sales and marketing in their organizations. Additionally, 40% of survey respondents say sales and marketing goals are being measured by different metrics.

Including the marketing team early in the incentive design process can help ensure that the plan is designed to meet brand objectives and the KPIs tracked by marketing can be valuable inputs into the plan components themselves. Conversely, the marketing team should include the incentive design specialists in their processes and conversations to ensure an appropriate understanding of the brand priorities and that incentives are not misaligned. For example, for many organizations, insufficient capability for customer strategy and planning are preventing them from realizing gains from omnichannel efforts. 

This part of the incentive design journey may feel familiar to most, since it is where the bulk of the effort is focused. Design teams typically use historical performance data and the latest customer universe to make adjustments to goals, payout curves and commission rates to design the plan for the upcoming year.

Although this a relatively mature process, there are opportunities to accelerate using AI. Traditionally, most analytics have been limited to the basics (for example, retro testing, correlation charts); we can evaluate multiple parameters in goal setting, conduct analyses using natural language models and reduce the overall time and effort required for plan modeling.

We can combine the power of AI with the insights from brand imperatives, organization philosophy and workforce analytics to design incentives faster and in a more customized manner. Some ways in which AI can increase the impact of the incentive compensation design process are:

• Data-driven analysis: AI can analyze large volumes of historical data to identify trends and patterns in employee performance, engagement and retention. This allows companies to understand what incentive structures have been most effective in the past and to use these insights to inform future plans.
• Predictive modeling: Machine learning algorithms can be used to predict employee behavior based on different incentive scenarios. By simulating various compensation models, AI can help identify which plans are likely to yield the highest motivation, productivity and retention rates.
• Continuous learning and improvement: AI systems can continuously learn from new performance and incentive payout data, allowing organizations to adapt their incentive plans near-instantaneously. This ensures that the incentive plans are always modeled based on the latest data and that financial modeling is always up to date, reducing the lag between data and decisions.

Using AI tools, we can reduce the time required to model incentive plans, design innovative plans that are customized to individual needs and uncover hidden patterns in performance that would have otherwise been missed in the design process.

Effective communication is a crucial component of an effective incentive program—but it is often overlooked or thought of as the final step. Communication should be planned up front; regular messaging of incentive priorities can help get increased engagement from the sales team and leaders. It is not sufficient to just communicate often; personalizing communication is essential to ensure that employees understand the plan and feel valued as individuals. A generic email blast won’t suffice. Here are some key considerations for a personalized communication strategy:

• Innovative communication: Companies should use storytelling techniques to illustrate the benefits of the incentive plan and share success stories from within the organization. With new AI-based tools, creating engaging animated videos is easier than ever. These tools can be the difference between an exciting, engaging incentive plan and just another company video about how to make a paycheck.
• Multi-modal engagement channels: People consume information differently, so it’s important to use multiple communication channels. Leverage a combination of email, video, intranet posts and in-person meetings to reach all employees. In some cases, employees may not be in front of their laptops all week to review material sent over email, and others may be in the field and unable to attend office hours. “Change champions”—members of the field team who have been involved in the design process—can help propagate this information more broadly and support adoption.
• Feedback and interaction: Encourage feedback and interaction throughout the communication process. Create opportunities for employees to ask questions, provide suggestions and discuss the incentive plan. This two-way communication helps address concerns, build trust and ensure that employees feel heard.
• Role of leadership: Leaders play a crucial role in reinforcing the incentive plan’s importance. Senior leaders should actively participate in communication efforts, emphasizing their commitment to the plan’s success. Leaders can also share their own experiences with incentive programs, highlighting the positive impact on performance and career growth.

Designing an effective incentive plan is a multi-step process that goes beyond traditional fairness testing and performance distribution evaluations. It begins with a deep understanding of the organization, the workforce and the brand objectives through in-depth interviews, workforce analytics and surveys and pulls through with innovative communication techniques that grab the salesperson’s attention.

Intelligent, human-centered incentive design can be the difference between your plan becoming just another business expense versus an asset that helps drive business impact. Without an innovative approach toward incentives, organizations will find that their sales teams are not adequately challenged or rewarded, resulting in lost revenue, decreased engagement and increased attrition. On the flip side, an innovative, future-ready incentive plan will ensure that the organization is prepared for the evolution of the sales model and will be successful in motivating the rep of the future.