In an article on knowledge.insead.edu there were some insights into employee motivation based on research conducted by the business school INSEAD titled How Performance Incentives Shape Individual Exploration and Exploitation: Evidence from Micro-data.
The findings were quite surprising. There is always the risk that once you loosen requirements and offer more stable income, you attract employees who are not very keen on trying to find new opportunities. To avoid that, your managers must be able to identify past experiences and behaviors and choose the right sales representatives.
How incentives shape behaviors
The study showed that in order to maximize the incentive money they get from a deal, salesmen have to select suppliers and products carefully. When a performance-based incentive scheme was in place, salesmen sought to exploit their current contacts. When the reward system changed, they began to engage more in exploring new commercial ideas.
Surprisingly, it was the top performers who now had more time. They met new, lower minimum targets with ease and therefore had plenty of time to try to see what they could do with new products. With the new scheme, they were allowed to be more inspired by their own curiosity and interest in increasing their knowledge and capabilities. On the other hand, underperformers were prompted to follow the formula for fast, short-term results to catch up with their more successful peers.
Abandon financial incentives to encourage innovation
Without incentives, sales representatives were actually more motivated to act in the company’s best interest. Their desire to learn was their driving force. They started to build new relationships, enhance their social capital and deploy it for the company’s interests. That doesn’t mean that financial incentives are worthless. However, if managers want their employees to pursue radically new ideas, they should lift their tough requirements and let employees know they won't be penalized if their exploration of new territory isn't successful.
-jk-