Introduction
The underlying human dynamics of transformation are generally well understood, if inconsistently implemented: strong leadership, a clear vision, engaging and listening to staff, clear two-way communications, strategic talent management, and clear roles and responsibilities. However, one often overlooked area is the use of performance incentives for the transformation team and key stakeholders – well-structured incentives can significantly increase the likelihood of a successful transformation. We all understand that people make transformations, the right people will do the right things – in this blog we explore the efficacy of incentives in a transformation context.
At Claverton we often use the simple model opposite to harness the power of people in order to achieve successfully lead transformational change:
1. Leadership
The things that CxOs and senior leaders do every day in their executive roles should be applied to change. Being clear in your vision and communications, providing visible
leadership and motivation, setting clear goals, keeping things simple, employing people you trust and motivating them to align to your strategic transformation drivers are fundamentals for changing your business.
1. Peer Power
The power of your people can be used to generate specific values, behaviours and norms. If you are worried about cutting through the culture of your organisation, set up a special team for generate its own norms embrace some of the doubters, resistors and naysayers and use the positive influence of peer power within the group to provide a guiding influence – through this you can create a hugely powerful ‘coalition of the willing’.
2. Rewards and Recognition
The transformation is complex and fraught with risk but, like in most things, success breeds success, so hire and motivate people who possess a strong track record of success and make sure that they are rewarded for generating results; and don’t wait until the transformation is complete! Generate opportunities for rewards to be achieved throughout the transformation journey so that people see you are serious about change and their part in it
3. If You Can’t Change the People?
If you need to change culture or performance outcomes and are being held back by key individuals, then you must make tough choices. If some people are going to exit the business, working out how and when they should leave is important, especially if they have knowledge crucial to your transformation agenda. Coupling their release with effective rewards and recognition can create a win-win.
Now we will focus in on the third of these aspects – how can we best incentivise people to enhance our chances of success?
Applying effective mechanisms for transformation reward and recognition
Before considering reward and recognition, it is important to recognise that for incentives to work they must be aligned to desired outcomes and behaviours if you are to deliver your transformation programme successfully. The baseline is to set clear, SMART (Specific, Measurable, Achievable, Realistic, Timely) performance objectives for the programme delivery team (including key stakeholders), aligned to transformation outcomes and not to be outweighed by other factors, e.g. business as usual activities, unless specific exceptions need to be made, such as, where someone simultaneously works on multiple strategic programmes.
Most large organisations have a performance management framework in place. However, it is often geared solely to permanent, operational roles as opposed to transformational ones. Partnering effectively with your HR team will ensure that the target culture, values and behaviours you expect to implement as a component of your Target Operating Model are delivered as part of the transformation.
By ‘designing-in’ transformation performance objectives, you reflect and reinforce the importance of the need for change and the resulting benefits. Where a new organisation design is a component of your Target Operating Model, the work you do on performance objectives for people working on the transformation will prepare the ground for the performance framework to support your new organisation.
For the programme itself, performance objectives are a great way to avoid falling victim to conflicting priorities and personal agendas. If people have clear ties between their personal success and expected transformation outcomes, a healthy win-win team culture is more likely to develop.
The difference between reward and recognition
Rewards occur when a team member performs certain activities or behaviours in order to achieve an incentive such as a project milestone bonus, a positive performance appraisal (affecting bonus awards) or a threshold performance bonus.
Recognition, on the other hand, is a ‘non-cash’ activity where one makes special note or acknowledgement of something done, relying upon on generating a ‘feel good factor’. Recognition mechanisms can have a positive impact on people’s intrinsic motivation when they are deployed effectively. They build a culture which visibly values people and their contributions. That said, recognition should not be used for ‘expected’ performance levels, rather it should be targeted at exceptional performance, innovation, helpfulness or creativity.
Many organisations fail to make a clear distinction between ‘reward’ and ‘recognition’ which can result in confusion or a belief that simply incentivising people is enough to boost individual morale and team motivation. Instead, it is important to understand that effective motivation occurs as a function of appealing to both:
Extrinsic motivation: the level of motivation stimulated by the work environment external to the performance of a specific task, e.g. something stimulated by external rewards
Intrinsic motivation: the internal thoughts or feelings which drive an individual’s desire to achieve, perform, or undertake activities – motivated by self-esteem goals and the desire to be seen as competent
Financial reward is commonly understood to impact extrinsic motivation but have little impact on intrinsic motivation. Whilst that might be true in a psychological sense, it is clear that there are people who clearly use the amount of money they earn as their measure of success, which implies a level of intrinsic motivation where the acquisition of money is the measure of self-esteem.
Although loyalty and commitment may diminish, financial incentives can mean an organisation can retain people if those people perceive that they cannot achieve the same level of financial reward in an equivalent external position / company.
Effective Financial Rewards
There are two types of financial incentives which transformers can use to enhance the chances of successful outcomes being achieved to time and quality expectations.
Performance-based incentives are used where you want to improve your delivery track-record, for example, project phase or completion bonuses tied to timescales, benefits and business outcomes. Tiered bonuses also fall into this category as do performance threshold bonuses – you may use these where a transformation must solve a particular problem, e.g. there are infrastructure stability problems and you must achieve 99.9% uptime.
Behaviours-based incentives are used to reward specific behaviours or cultural contributions, for example, if you want to improve your leadership capability you might introduce a specific leadership programme and an accompanying SMART goal, tied to each leader’s bonus calculation.
Seeking to systematically improve overall behaviours requires behavioural measures to be part of your performance management system. Behaviours-based financial incentives typically appeal to an individual for a short time, in order that the objective is achieved – therefore these are ideal for visibly saying ‘thank you’ for specific efforts, tasks or performance where someone has gone beyond the call of duty. To reinforce those behaviours so that they become embedded, spreading incentives out over time utilises their short-term impact and can create a set of ‘learned’ behaviours to the extent where you can stop incentivising them. In the context of a transformation programme, stage completion bonuses related to behaviours are highly effective in building a positive team culture as well as delivering on time and to budget.
Effective recognition techniques
As not everything can be financial, it is important to use effective recognition techniques to embolden staff and maintain morale:
Saying thanks for doing a great job is underrated as a recognition technique, particularly if said by a senior manager that the recipient rarely sees or speak to. Never underestimate how effective this simplest of tools is
Public praise from a manager posting something on the intranet or in a weekly news update saying thanks for a key achievement can also be effective as it is highly visible and creates a feel-good factor, particularly if it happens regularly and to different people
Having a staff nomination scheme where staff recognise the contributions of each other via voting sessions (e.g. ‘Players player of the year’)
Further use of non-cash recognition can be made via:
Vouchers, event tickets, offering to buy someone’s family dinner, and prizes: e.g. red-letter days all offer way to visibly thank people for special efforts
Use of facilities: recreational facilities, upgraded parking space, gym, etc
Merit points for special performance that contribute towards an individual or team prize
Recognition incentives only work if the basics are in place, e.g. agreed behaviours are measured and people are held accountable for exhibiting them. Equally, there is no point incentivising people with wholly unrealistic objectives; people will quickly see through that, rendering the incentives meaningless.
What will we gain by incentivising transformation teams?
Firstly, incentives can help to offset some of the negative reactions to change. If people are fearful of the change, it is important to understand the root cause of that fear and work through it with them; part of the solution is to offset that negative fear with a positive incentive. It is important to recognised that attaching financial incentives to outcomes will lack impact where certain individuals are determined to block change and are not managed appropriately.
Linking incentives to the right outcomes and behaviours will galvanise the team behind your transformation goals. This is especially important where fundamental changes to your operating model which affect people and their future roles, particularly when some key people will be leaving the business as a result. Effective incentives help to retain key staff for the lifetime of a transformation programme – these coupled with strong references or even a personal recommendation, will encourage people to fully commit to the programme even when they know they will be working elsewhere after it finishes. In many cases, displaced staff who perform well on a transformation programme end up being retained by the company for a different role which, in itself, can be used to provide an additional source of incentive.
Contract/freelance staff are amongst the most valuable transformation experts but are the most undervalued when it comes to applying incentives. Leaders often look at contractors as high-day rate experts who are already well remunerated, so they bonus internal staff and ignore the power of contractor incentivisation. We have witnessed several high-performing transformation programmes with the foresight to place certain contractors on special, performance-related bonuses and the effect has been palpable. Incentivised contractors often drag other people along with them and form a key component of your ‘coalition of the willing’, with skilled specialists in every team generating purpose and momentum.
You can design-in quality through the application of suitable incentives at key points:
During the completion of the design phase of a programme you should be able to draw a line of sight from the proposed solution(s) through to the benefits the programme expects to generate. Assuming you can set criteria to demonstrate that, at the completion of a design milestone, you are on track to deliver the programme benefits you can incentivise people with a bonus percentage at this point
The same approach can be taken to the completion of a programme’s implementation. If the quality of the solution has been maintained, all the benefits should be realised. If your benefits realisation plan demonstrates that is the case (and you have delivered on time) it should be possible to construct a key-person bonus based on this
Most importantly, well-design incentives will save you money. As an example of this, imagine you have transformation programme with a burn rate of £1m/month, so a 3 month delay costs you £3m. Incentivising your top team and a few key specialists costs you £500k in bonuses which is only paid out if the delivery criteria are met and the £3m is avoided. This is a basic insurance premium against failure. Pitched at the right level, the financial incentives will contribute towards a high-performance culture and the key people will be pushing as hard as possible to deliver on time and to quality expectations.
Conclusion
It is crucial to balance performance objectives and incentives for internal staff between transformation and business as usual (BAU) outcomes. If an internal staff member is seconded to the programme, they should be fully bonused in relation to the transformation outcomes and removed from their normal bonus scheme. Where staff are split between transformation and BAU activities, consider giving the transformation activities a higher weighting for bonus calculations, particularly if that transformation is making fundamental changes to your operating model.
It is especially important to incentivise people who will be leaving the organisation as a result of the transformation succeeding. Even when staff will be leaving you are likely to need them to perform (or over-perform) in order to make the change a success; a clear incentives package will let people leave with dignity, a reward for personal and team performance, and great things to say about your company and you.
Don’t forget the contractors on your team – they can either simply be a source of expertise, or a galvanised force for change and a key component of your coalition of the willing.
Finally, balance the use of reward and recognition. Most truly effective transformation programmes have leaders with highly developed emotional intelligence, using recognition as an effective motivator of intrinsic motivation and reward as a driver for extrinsic motivation and to successfully deliver transformation goals.
Contact Claverton
To contact our experienced Transformation leaders please visit our website (www.clavertonconsulting.co.uk) or email <info@clavertonconsulting.co.uk
Comments