During the wonderful SPM Network meeting here in DC on Tuesday, there was a discussion about incentive and how it can play a major role in assuring positive SP outcomes and measures. The following is intended to help frame the discussion of how incentive works on the job. I hope we can engage in a constructive and profitable dialog here. ...thanks

Using Incentive to Improve MFI and SPM Performance.

Purpose/Scope

The Imp-Act effort to identify and document incentive plans that would reinforce Social Performance improvement outcomes is well underway. This document is intended to provide a general overview of incentive’s role in guiding human behavior and improving employee performance.

Understanding Incentive
Incentive is at the very heart of the workplace, yet most managers do not understand incentive sufficiently to use it as a tool for positive and mutually acceptable change. The effective use of incentive is one of the most powerful and effective tools MFI management can use to improve operations and profits.

What is Incentive?
Incentive is that stimulus which drives us to act in one-way or another. Through the management of incentive MFI Management can gain terrific advantage in the marketplace.

Everything we do in the workplace is incentive driven. Each task we perform is motivated (another loaded term) by incentive. More surprising yet, is that money is usually not a factor in most of the work we perform on the job. We come to work for money but we work for non-monetary incentives. Incentive is embedded in our every day lives. Every choice we make is driven by it. The stores we visit, the food we eat, the friends we make, and even the places we visit. Most people do not think about money when on the job. Instead we think about other job related incentives. Here are some workplace related incentive drivers often overlooked by management when considering incentives:

• Is this something I know how to do?
• Do I like doing this?
• Can I tell immediately if I did a good job?
• If I do well will anyone notice?
• Does this task really matter to the job?
• Do I get to work with neat people?
• If I don’t do it will anyone notice?

Incentive & Performance at Work
Since Incentive is the stimulus that causes us to act, then it is reasonable to assume that a manager should have a good understanding of incentive and how it motivates performance. At work, MFI management controls the environment. The manager is constantly trying to get workers to perform better, to work faster, and to make better decisions that improve profits. Incentive at the MFI is exactly the same as incentive in any other work environment. Here is a model of how incentive at work functions

(missing model: email me and I’ll send it offline until I can get it up on our website for downloading)

To accomplish work the employee responds/acts. Every response has consequences. The employee sees these consequences as positive, negative, or neutral. Actions that have positive consequences are very likely to be accomplished. Responses that have negative consequences are less likely to achieve the desired result. Through the arrangement of the consequences and by providing those consequences as feedback to the performer as timely as possible, the manager can both direct and improve workplace outcomes. Management can often create incentive in the workplace without spending any money by making simple changes in how the work is actually performed.

Dis-incentive: When management gets in the way.

If MFI management asks the loan officer to perform tasks for which there is not sufficient information or, that are in conflict with the officers perceived interests or, that are convoluted and/or obscure or, in fact, actually conflict with effective job performance then this is dis-incentive. It is the obverse of incentive. Some examples will be helpful. One form of dis-incentive is a lack of sufficient information about the job/task/procedure/or process to be performed. This can start with the objective, or primary purpose of the job.

Loan Officers, under extreme pressure from management and tasked with acquiring new loans will sometimes take on a new loan without having confidence in the borrower, branch managers eager to satisfy their quotas may look the other way. In fact some loan officers will go so far as to falsify information. Then, there is the problem of delinquent loans. Pressure from Branch Managers can cause loan officers to be abusive and even threatening to beleaguered borrows. What seems to management to be a perfectly rational incentive program can easily lead to poor loan performance and unsatisfactory PAR and SPM’s.

Use Incentive to Change Behavior
Management often assumes that failure to perform a common task is a lack of knowledge on the part of the employee. Issues like, partially completed loan applications for example most likely are incentive problems, not knowledge or skill issues at all. If a loan officer turns in an application that is partially complete, what happens? If the branch manager or a clerk completes the task and there are no consequences to the loan officer there is little hope that this behavior will change. Note in the above model there are consequences to every response and that the consequences range from positive, to neutral, to negative. In the case of our loan officer the consequences are first, positive (they save time by not filling out the application completely) second, neutral (no one asks why the application is incomplete and there are no negative consequences for poor performance)

Here are some measures a branch manager might take to reduce the percentage of partially filled out loan applications:

1. Announce a new policy to reduce the number of incomplete applications
2. Have all loan applications checked daily for completeness
3. Make a list of all loan officers who turn in partially completed applications and place the list in a prominent place.
4. Inform each delinquent officer and update the list daily
5. Fine all loan delinquent officers $1.00 for the cumulative number of incomplete
• Note: each effected officer gets charged for the “total” number of incomplete applications not just their own.

The announced purpose of the policy is to cover the internal costs of having others complete the job of the loan officer. This will cause much complaining but as long as the process is universally and fairly administered it will work.

I wrote this to see of any interest in such strategic use of incentive is seen as valuable to the MFI community. If so, I will cover other aspects of Incentive and means by which incentive can be managed to improve employee morale, performance, and job satisfaction while also addressing key SPM’s.