Linking incentive schemes with business strategy

Linking incentive schemes with business strategy can prove highly effective in boosting employee motivation levels, says Sarah Coles

In the early 1990s, US-based Continental Airlines had a real image problem: years of cost-cutting had left employees often demotivated, and flights were frequently late or cancelled. The company decided that it needed to improve reliability, because at the time, delays and cancellations were costing the organisation around $6m a month in replacement flights and hotels. In a bid to turn things around the company’s then chief executive announced that this $6m would be shared with employees every month that Continental Airlines was ranked as one of the top three most reliable airlines in the US.

As a result, employees started finding ways of making the company more effective, and instead of arguing who was responsible for what they just dealt with any problems there and then. By the second month of the scheme, Continental Airlines was ranked first in the reliability ratings.

This is a classic case of how a motivation scheme that is aligned to business strategy and well communicated to staff can have dramatic effects. This approach is increasingly fundamental to motivation schemes. Michael A Fina, vice president of Michael C Fina Worldwide, says: “Every HR leader we speak to is focused on delivering business results and looking for ways to use incentive schemes to support that.”

The first step for employers looking to align a motivation scheme to their business objectives is to consider what their organisation is trying to achieve. This is typically set at board level and may include broad business aspirations, such as conquering a new market, ensuring more repeat business, or improving the brand.

Below this, employers should then identify what they need to put in place in order to satisfy this strategy. This may include encouraging teamwork, focusing the sales effort around a particular product or range, improving customer satisfaction and retention, or meeting specific financial targets. These factors then become the measurables that a scheme can feed into.

If an organisation wants to secure more repeat business, for example, it could choose to focus on and measure the improvement in customer satisfaction levels. In this instance, a scheme could be established to reward employees who achieve the highest satisfaction ratings each month.

But the business goals behind a scheme don’t necessarily always have to be communicated to employees. Derrick Hardman, managing director of Capital Incentives and Motivation, says: “The broader business objectives are not always explained. It may just be that the scheme is made to look attractive to employees.”

A range of activities can help create staff interest in a scheme without having to go into wider business objectives. For example, holding a themed day with decorations, giving away goody bags to groups of staff who sell more of a particular product, or allowing employees to dress up in fancy dress.

If a broad business aim is unlikely to switch employees on, such as increasing profits, then using an incentive scheme to motivate staff to work towards this ultimate goal may be more effective than simply communicating that objective to employees.

However, by not letting staff in on the bigger picture, employers may be missing a trick. Employees may feel more valued if they are shown how their efforts fit into the broader business strategy. According to the 2005 Motivation survey by Accor, feeling important and involved with their employer ranked as the fifth most important motivational factor for employees, after fair treatment, good pay, relationships with colleagues and job security. This factor was also considered more important than benefits, training, and promotion prospects.

David Tong, a principal in the human capital business at Mercer, says: “One very common driver of engagement is clarity of direction, vision and purpose. If you know where the organisation is going, you can make sense of the day-to-day around you, and you can buy into the things that affect you. The other thing is alignment. If you work in a very small part of the business it is difficult to see the strategy and how it affects you. It needs cascading [down] and circulating by local management for employees to have a line of sight to see how what they are doing feeds into the larger organisation.”

However, Kuljit Kaur, head of business development at P&MM and The Voucher Shop, warns that communicating some objectives may end up actually working against an organisation’s aims. “Telling people, ‘we need profit to improve by this number of pounds, so we need you guys to work harder’ is counter-productive, so this needs to be communicated in a softer way.”

Using an incentive scheme is a good way to demonstrate how an organisation’s business strategy and reward offering match up. It is a chance for a company to ask for commitment from staff by demonstrating commitment to them. “If an organisation [tells] employees that it wants a particular type of behaviour, and then starts rewarding it, it gives employees confidence. If [they] get mixed messages from the organisation people start pursuing their own agenda,” says Tong.

However, even if a scheme is linked closely to business strategy, it will fail unless suitable rewards are used. One common incentive, particularly among senior management, is a performance-related share scheme, offering a tranche of shares if an executive meets performance criteria. “It gives [these staff] more of a stake in the outcome,” Tong adds.

But he warns: “If the share price starts dropping, it has a limited impact. Plus the scheme needs to be structured so employees hold the shares for the long term and can’t just sell them to make a bit of money.”

Performance-related options can also be used in this type of scheme. However, they are falling out of favour for two reasons. Firstly, nowadays they need to be accounted for in a company’s profit and loss account, so they are not as attractive as they once were, and secondly they are only worth anything if the share price rises, therefore in a falling market an executive may meet all of his or her targets but receive no reward.

These schemes are particularly suitable for meeting long-term objectives among senior staff members. However, for company-wide schemes, or for more junior staff, most organisations will prefer to use something less expensive and more flexible.

Bonuses, which can be set up on a weekly, monthly or even longer-term basis, can be useful tools. “If a large part of [employees’] pay is discretionary, such as a bonus or [comes from an] incentive scheme, it drives behaviour,” explains Tong.

However, there is a downside to bonuses. Martha How, head of reward consulting at Hewitt Associates, says: “Bonuses can become very transactional. If, for example, an employee receives a £5,000 bonus in the first year, they may be very impressed. In year two, they are still likely to be pleased, but by year three, they may come to expect it. So you can end up with a ratchet effect.”

As an alternative, non-cash incentives enable an organisation to refresh a scheme without having to increase the value of the reward that is up for grabs. Employers that opt to structure a scheme in this way have a number of options open to them, depending on factors such as the budget available and their workforce demographic. One is to offer an overall grand prize. “If you have a young call centre [workforce and] offer them a safari as a prize, it’s too far outside their thinking for them to get excited about. But if you offer them an overnight stay in a European location, with a night in a club with a top DJ, it’s more akin to their lifestyle,” says Kaur.

How adds that an overall prize is flexible and can be used to reward an entire team, with perhaps a day out, or an employee and their spouse, with a weekend away to reflect the fact they may have both made sacrifices to ensure the employee hits their targets.

Employers can also tailor the reward to reflect the company objectives and values. Hardman says: “We offered an incentive for 20 people to have the day off to work with a local wildlife trust, which was great for teambuilding, and reflected corporate responsibility objectives too.”

However, it can be difficult to meet the aspirations of every employee with one prize, says Fina. “Where companies go wrong is in trying to pick a reward that will appeal to all employees. The most important thing is choice.”

Prizes such as vouchers offer staff an element of choice. If a scheme is ongoing, employers can offer a points-based reward system, which employees can collect and then redeem against a choice of prizes in an online catalogue, or save for something specific. Paul Bartlett, head of employee reward and benefits at the Grass Roots Group, says: “The cumulative effect can be quite meaningful, because even relatively low-level rewards could add up to something like a holiday over a period of time.”

Key to a scheme’s success is its design. Hardman recommends making awards little and often. “We encourage clients not to go for the big prize where the winner takes all at the end of the year, [as] we find that part of the way through, 80% of people give up because they are never going to win. It’s great to have the big prize, but you also need smaller wins along the way,” he explains.

Simply putting a motivation scheme in place is only the beginning. Employers need to ensure that they keep schemes fresh, communicate them and measure results, because if they are relying on them to help deliver their business strategy, one that falls short could be bad news for the whole organisation.

Top Tips
How to link motivation to business strategy n Consider what the organisation is trying to achieve through its overall business objectives.

  • Identify what measurable factors need to be put in place in order to achieve these goals.
  • Determine whether or not to communicate these goals to staff. This can make them feel more valued, but in other cases, the reward itself may be enough to motivate them.
  • Ensure that the strategy offers staff suitable rewards in order to maximise employee motivation and engagement.
  • Tailor the scheme to suit the employees it is designed to motivate. Longer-term incentives, such as share schemes, can be used to motivate senior staff, while more junior employees may be motivated by receiving small awards more often.


In 2006, EasyJet wanted to create a motivation scheme for its 5,500 employees that reinforced its business goals of keeping costs low, safety paramount, and customer service high.

To achieve these aims, the airline introduced the Gem awards, which stands for “going the extra mile”. Employees can nominate one another or a whole team for behaviour that encapsulates the values of safety or customer service. This can include highlighting a particular hazard, taking action to keep customers safe, or an example of great customer service.

A judging panel then votes on the nominations, and winners receive vouchers from AYMTM, which designed the scheme, to spend on travel, gifts and shopping. Since the scheme was established, it has received more than 1,500 nominations, and awarded £80,000 to staff.

In April this year, the company introduced a new strand to the scheme to reward staff who come up with ideas for ways in which the business can cut costs, called Ideas Pay. So far, this has received more than 400 nominations, and 52 employees have been rewarded for their suggestions.

Andy Turnbull, organisational development manager, says the scheme is designed to reward staff who live out the company values, and deliver “low cost with care and convenience”.