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The Evolution of Incentives

Cabrera_newToday's blog post is by Christopher Cabrera, CEO of Xactly Corporation, the industry leader in sales compensation automation.

 

Throughout history, incentives and rewards have driven human motivation and behavior. Here are a few examples taken from my forthcoming book, Game the Plan: Every Sales Rep’s Dream; Every CFO’s Nightmare,of how incentives have evolved throughout the decades.

The 1920s

During the Roaring Twenties, companies began manufacturing new machines (including cars and appliances) on a massive scale. These companies needed droves of salespeople to court customers. Such large companies as Coca-Cola and General Electric assigned territories, set quotas, and began to measure salespeople’s success. To keep up with the competition, they also began to focus on professionalizing their employees and rewarding them with cash bonuses and induction into elite clubs.

Eventually, an imbalance between labor supply and demand, coupled with the Great Depression, put incentives and bonuses on the back burner – but only temporarily.

The 1940s

In the forties, organizations moved beyond the idea of using incentives to drive only better behavior in general and focused instead on how they could be used to drive specific behaviors, such as selling a certain number of units in a set time period. Companies shifted away from the large “gift” bonuses of the ’20s and instead used a new structure in which bonuses were paid out in three to five years, when specific long-term goals had been reached. These types of incentives were created to help employees focus on the long-term prosperity of the company rather than the immediate gratification of cash bonuses.

The 1950s

Salespeople in the 1950s wanted a comfortable life with status symbols to spare. This decade introduced perquisites, commonly known today as “perks.” Due to changing tax laws, companies needed a way to motivate the work force that didn’t involve money. Perks were just the answer they were looking for. Salespeople in the ’50s were motivated by the promise of fancy company cars, country club memberships, private secretaries, and the use of vacation homes.

The 1990s

Before the boom, dot-coms were cash strapped. Thus, stock options were seen as a great way to attract and keep talent (at least until options vested). In addition, stock options contained a built-in incentive: eventual payout was tied to company success, which guaranteed that employees would work hard to make sure the company was thriving. Imagining the possibility of an IPO like Starbucks (with market caps that grew at an astounding rate) was enough to incent employees to work as hard as possible.

Today,many companies are doing it right by

  • fostering improved quality of life by offering free food at lunch and dinner, massages and yoga, and backup child-care assistance (Google);
  • helping employees juggle work, family, and a social life by offering such services as dry-cleaning pickup and car servicing (eBay);
  • encouraging fun by offering Ping-Pong tables, Hackathons, and scooters in the office (Box.com);
  • providing unlimited vacation days to enhance employees’ desire for freedom and autonomy (Netflix).

For a more detailed account of how incentives have evolved, check out my new book, which will be released on January 28, 2014. Find out more at www.GameThePlan.com.

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