If you view your incentive program as a cost, it will really cost you. Instead view it as an investment to increase net profits.
If you choose awards first and then budget for them, your incentive program is based on faulty and incomplete data…and you are budgeting backwards.
Top 5 Mistakes in Creating Incentive Budgets
- Basing budgets only on what you think you can afford to spend for the awards
- Budgeting by what you spent last year
- Lowering your budgets and naively thinking you can negotiate better prices for the same value
- Budgets unrelated to incremental revenue and expenses from all departments, including those outside the program
- Basing budgets on the discipline of cost savings rather than the principle of investing
Incentive program are designed to create change in a company. Thus, the incentive award budget should be based on what would motivate the target audience to make the desired change. The budgets for these programs should be tied to the projected financial benefit of making the change(s), including all incremental revenues and expenses. Simple math then measures the proposed incremental improvements against all incremental costs to calculate if the program will yield a satisfactory return on investment (ROI).
Focus on the incremental revenue and expense projections that result from the incentive program, not the program costs.
Creating a budget for an incentive program is perhaps the most misunderstood step of all. Much creativity enters the budget process, using as many factors as seem relevant. But notions of relevance are typically wrong; budgetary creativity is unnecessary. Incentive and motivation program budgets should be based on one criterion only – financial objectives. And that includes the projected ROI.
If your incentive budget is always under attack from other departments, that conflict is a sure sign you need to listen to them. If the CFO rolls his or her eyes whenever you start talking incentives (read, bloated costs), then you need to educate the CFO to the new logic of ROI Incentive Planning, then he or she will start paying attention.
What is the new logic of ROI Incentive Planning?
The new logic of Incentive Planning, having a budget you can really work with to drive measurable results attributed specifically to the incentive program, requires a shift in perspective. Your program should be viewed as an investment not a budgeted cost or expense. Viewed as an investment, you can generate incremental profit and achieve True ROI from your program. Get the download below and find out how.
How does your incentive program measure up?
If your incentive program is annoying to every department in your company, except those who get to participate in earning an award, and you want to find out what you can do about it, request your complimentary Incentive Program Performance Discovery Session.
Up next: Incentive Program Budget Stories; success and failure.