SalesForceXP magazine - September/October 2006 Coverstory: The Money Trap (You Can’t Trust People To Treat Themselves)

FEATURESTORY

You Can’t Trust People To Treat Themselves

by Paul Nolan

Good managers are great listeners, but when it comes to creating incentive programs, it may pay to tune out your sales team. That's because many salespeople promise to bust their humps for cash bonuses, only to leave managers wondering what went wrong when more than half repeatedly fall short.

It's not what salespeople say they want, it's what they'll actually work to obtain. Research indicates that money isn't the performance driver that your salespeople would have you believe it is - in large part because they don't realize it themselves.

Surveys show that once people have earned enough money to cover basic needs, more cash doesn't make them much happier. Researchers say making more money produces short-term happiness, but humans adapt to their new wealth quickly and develop a thirst for more - a state of running in place that economists call the "hedonic treadmill."

Reluctant Indulgers

What's more, people are too practical for cash incentives to work the way sales managers want them to. Companies may pay out cash incentives with the intent that recipients indulge in something they otherwise wouldn't get to enjoy, but more often than not, it's spent on bills or stuffed in the bank and quickly lumped in with the rest of their salary.

One-of-a-Kind

High earners admire exclusivity. Offering incentives that they can't access themselves - at any price - is especially inspiring.

"Pink Cadillacs cannot be purchased directly from General Motors; they can only be awarded by Mary Kay Cosmetics," says Jeffrey.

Luxury boxes at sports events or backstage access at a concert are similarly out of the reach of employees. The fact that these are unobtainable except through your company makes them more valuable than the cash it costs to provide them.

Try drumming up enthusiasm for your next sales push when they can't remember what happened to their last cash reward! As explained by Ran Kivetz, a professor at the Columbia University Graduate School of Business, many adults struggle with "hyperopia," or the difficulty of deviating from "doing the right thing" in terms of fiscal responsibility. In fact, studies over several decades in psychology and economics show that people often choose virtue over vice in matters of spending, only to regret their decision later because they feel they've missed out on something pleasurable.

Even more interesting, Kivetz's research on consumer behavior shows that many will opt for non-cash "luxury" rewards over cash of equal or greater value in order to guarantee that the award is not spent on necessities.

If your intent in rewarding top performers is to create lasting memories or get them to indulge in life's finer things, it appears as though you can't trust them to buy it for themselves.