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Incentives and motivation: in this time of austerity, are incentive schemes aligned to business strategy?

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It is not often that the shambolic workers in the US version of the hit comedy The Office provide genuine lessons for employers, particularly in the field of motivation.

But a recent episode of the series has homed in on a salient point for managers: is offering employees the opportunity to choose a design for you to have tattooed onto your backside the best way to incentivise them?

As Paul Hebert, MD of US-based incentive consultancy i2i, points out, there are genuine lessons to be taken from the farcical scenario. The episode sees sales manager Andy Bernard incentivise staff to double their results by offering points for specific behaviours that can be redeemed for rewards. But the team decides the reward it really wants is a tattoo on Andy's rear - and subsequently goes on to achieve the set targets. Hebert sums up the lessons of the episode neatly: reward choice matters. The team hit its target, in order to gain a reward that was personal, relevant and real.

The endless question of how to motivate staff is never more pertinent than in the current austere climate, but are employers aligning their incentives programmes with their business strategy?

As Dan Satterthwaite, head of HR at DreamWorks Animation, says: "The days of the gold watch are long gone."

John Evans CEO of group-buying website, Incahoot.com, believes the best way to motivate staff in this environment is not soft benefits such as free sweets and duvet days, but 'cold, hard cash', every time.

"It is no secret companies are suffering at the moment, trying to squeeze pay while needing their staff to work harder than ever," he says. "Unless the perceived value of the incentive is much higher than the equivalent cash value".

Evans believes the future of incentives lies in alleviating stress for employees and offering cash value. He adds: "Employers have a responsibility to provide tangible benefits. So if the company has the ability to reduce an employee's monthly bills, this then renders a higher financial yield, and affects their bottom line more than cash could.

"As the country's belts have been tightened, and we have moved away from the period of latent excess that characterised the early noughties, incentives have had to reflect the shift," says Evans.

No more wine vouchers, he says: perks nowadays need to make an employee's financial situation easier.

If Evans is to be believed, employers are entering a new era of 'austerity motivation', where traditional perks make way for incentives that have an impact upon an employee's bottom line - and not in a tattoo sense.

Mark Quinn, partner human capital at Mercer, agrees, saying the consultancy's What's Working survey shows "quite clearly" the number one concern for staff at the moment is base salary. "In austere times, people want certainty about what they are getting paid," he explains.

"Base pay and an increase in fixed costs are what people are most focused upon. Organisations are looking to retrench as much as possible on fixed costs - so there is a slight conflict there."

Hence offerings such as shopping vouchers and bonus schemes related to the growth of the company itself. For staff, this may not quite be the answer.

"In 2012, we are predicting salary increases will be in the region of 3%," Quinn says. "With inflation running at 5%, this will be the third year in a row that the average earnings increase is lower than inflation. The average worker is worse off. There is a desire for base salary that isn't being satisfied."

Can any amount of shopping vouchers compensate for this?

Alex Speed, head of corporate sales at Love2Reward, defends the case for his company's most popular offerings, saying these remain the ubiquitous Love2Shop vouchers and a flexible benefits card that can be 'topped up' in lieu of salary, to offer employees a 7% cash saving on everyday goods.

"There have been pay freezes across large organisations that would normally give staff between 2% and 4% pay increases," she says. "They are saying to employees, 'we can't put your pay up this year, but as a gesture, here's some Love2Shop vouchers'."

And Tal Gilbert, head of research and development at PruHealth, says despite the private medical insurance market as a whole declining by 8% since 2008, sales of PruHealth insurance have actually increased.

He attributes this to the cash benefits the insurance offers, adding: "Employees can make savings of up to £1,355 a year on things they actually want and use on a day-to-day basis, such as mobile phones, gym memberships, trips to the cinema or theatre and holidays. These cash savings help motivate people and provide immediate, tangible benefits to staff every day, rather than just when they get ill."

Whether or not employees feel pacified by shopping vouchers in lieu of a pay rise is another question. That's not to say, though, that there aren't companies getting it right.

Nicola Yates, group HR director at student housing company Unite (see p48), says: "While financial downturns make us re-examine our rewards and incentive budgets and drive us to come up with creative solutions to make our money go further, we should practise this discipline in good times as well as bad. Financial rewards systems should always be affordable, cost-effective and linked to improving a company's performance."

The future of incentives is more personal and emotionally led - assuming employees' financial needs are met through their salaries. "The core of fair, competitive pay and security must be handled first, but next there needs to be meaningful work that challenges people and allows them to grow," says Satterthwaite.

Hebert agrees, saying rewards programmes in future could work like Amazon's suggestion engine, offering managers and employees ways to become more engaged.

"We have made it so easy to recognise people that it is getting less valuable," Hebert says.

"There will be more emphasis on manager training and less on the systems that take the manager's role and 'automate' it. The pendulum will swing back to very personal recognition."

But as Generation Y enters the workforce priorities will change. "They are bringing a new set of expectations about how they are incentivised and what is meaningful to them," says Satterthwaite. Meanwhile Michael Bruno, senior vice president HR at advertising social enterprise software provider, Buddy Media, warns: "People will want more time off, flexibility in work schedules and employees will jump from company to company.

"As management, don't take it personally," Bruno wisely says. "Human beings like different experiences."

How to motivate and how not to

For Tom Pellereau, winner of last year's stint of the popular reality business show, The Apprentice, the chance to go into business with Lord Sugar (pictured together) was the ultimate motivator. "It was a dream come true," he says.

"For me, the keys to motivating are direction, praise, listening and a smile. Clear instructions, direct and appropriate praise, and being open to ideas and criticism from those around I find important."

The idea of being hauled into the boardroom and told 'you're fired' must also be something of a strong motivator - nobody wants that kind of public dressing-down.

The internet is rife with blogs, articles, videos and lists of examples of bad management and poor motivational techniques. Common complaints include: poor communication; bad interpersonal relationships; micro-management; and inconsistent approaches characterised by lightning-quick changes of mind. Lack of trust in employees features highly, as does unprofessional and inappropriate behaviour.

An alarming paper published in Psychology Today in 2009 estimates that up to 75% of managers in the US are incompetent.

The concept of the bad manager has led to numerous hit comedy parodies, not least The Office and its US counterpart and box office smash, Horrible Bosses.

As much can be learned about motivation by understanding what not to do. Otherwise, employers may have to bite the bullet and ask their staff what tattoo they would like them to have inked on to their backside.

Case study: Unite

Bristol-based student accommodation company Unite has just been certified one of Britain's Top Employers for 2012. The award was based on independent research by the CRF Institute, which looks at companies in four areas: primary and secondary benefits and working conditions; training and development; career development; and company culture.

In terms of trends around incentives, Eleanor Nickerson, country manager at Britain's Top Employers, said: "We are seeing a heavy emphasis on flexible benefits and segmented employee offerings."

Nicola Yates, group HR director at Unite, says motivation does not lie in simply 'flinging' incentives and cash at people. "Human beings are much more complex," she notes. She points to a range of areas crucial to motivate a workforce, including: pay; recognition; employee voice; training and development; caring about the future; offering additional responsibility; offering a good working environment; and having executive visibility.

'There isn't a one-size-fits-all solution, but by providing a range of rewards and recognition, staff know we are trying to cater for their individual needs and feel motivated to be part of this ethos," she says. "Relying only on financial gain is shortsighted.

"There will always be someone who can offer them more," Yates notes. "Cold, hard cash is quickly forgotten, once it's spent. The practices and cultures you create in the workplace can make people feel valued on a daily basis."

The key to motivation is a mixture of management tools, Yates says. "We need to remember, though, that employees get a salary for turning up to work. It is about using all of the other management tools in your bag to make them want to stay. In my experience, this isn't about throwing cash at people."

The impact of generation Y

Michael Weaver, programme director at leadership consultancy, DPA, points to research on motivation it has carried out in association with the University of Sussex. He defines two types of motivation: intrinsic, where the staff member is motivated from within; and extrinsic, where the staff member is motivated by external factors.

The individual is intrinsically motivated if they perform their duties independently, feel what they are doing is worthwhile, and are able to see their own progress and feel they are getting better at their job.

As the workforce changes generationally, Weaver says, these factors will become more important. As Generation Y enters the workforce, the relationships forged at work will become more important. "Generation Y wants a social experience at work, which reflects what they have outside of work," he notes.

Paul Hebert, MD of US-based incentive consultancy i2i, points to US research by Ariely and Heyman: "People perform better when they are not offered cash, but offered something more intangible," he says.

Cary Cooper, professor of organisational psychology and health at Lancaster University Management School, says the key to motivation lies within good management, not cash incentives. "Up-to-date information and making staff feel valued, are the best ways to keep the workforce motivated and engaged."