On Saturday, I read a news story that described the new incentive program at United Airlines that would replace employee bonuses with a lottery-style program. The author clearly wasn’t in favor of the new incentive idea, referring to the news as “unfortunate” and mocking United’s description of the new lottery program as “exciting.”
The basic tenet of the plan is described in various news articles and was summarized by my colleague Glenn Hollister in a blog post for Fly, Drive, Stay, ZS’s travel and transportation blog: United proposed replacing its $300-per-employee quarterly bonus plan with a plan in which a small number of employees could win large prizes worth up to $100,000. Within two days, amid employee outcry and negative media attention, United announced a reversal of the program.
When I first read about the lottery program, my initial thought was that it could work—or it could be a disaster. Because of the very quick reversal by United, many people may conclude that it was the latter, and that a lottery program is inherently a bad thing. But is this true?
I have used and suggested lottery-style incentives in the past, and they can work if set up properly and used in the right situation. The winners of lottery programs often are determined by luck or chance, and for that reason, this approach is used in contests and SPIFs, even though most traditional sales contests have higher planned engagement rates (more winners) to provide earnings to more people, even at lower amounts, relative to a lottery. The primary challenge for many is that the reliance on chance seems to violate one of the fundamental tenets of an incentive program: pay for performance. Ironically, one common rationale for a lottery-style incentive is to keep motivation levels high, particularly in situations with widely varying levels of sales force performance.
If you’re considering the use of lottery-style incentives, keep in mind two things. First, think of a lottery incentive as providing a “chance to win” (for example, each chance is like buying a single lottery ticket) for a specific unit of performance. A lower performer may earn three chances to win while a higher performer may have 15 chances to win. Organizations need to help sales people understand that everyone has a chance to win. My one ticket has just as much chance to win as your one ticket. The benefit of higher performance is that I get more “kicks at the can,” so my overall odds of winning increase. Second, a lottery-style incentive should have prizes that are differentiated enough to capture attention. This doesn’t mean that they need to be singular, big-ticket items (like a car), but if your regular incentive program pays $2,500 in cash, a lottery program needs to offer something other than $2,500 in cash. The reward in a lottery needs to be meaningful enough to overcome the risk associated with chance.
Consider this in the context of buying lottery tickets. I know that my odds of winning are very low, but the prize could be very high. But when the size of the prize offsets the low probability of winning, I may choose to buy a ticket or two. Certainly, the United program greatly increased the size of the prize while increasing the role of chance in winning, so what was missing that resulted in the immediate negative response? I suspect that two factors were in play:
- The feeling of having something taken away: Asking people, particularly those in the airline industry, whom I suspect aren’t particularly well-entrenched in a culture of risk-taking, to willingly replace something that approximated a guaranteed payout with a program that has a much lower probability of a reward would create tension.
- A potential lack of change management: In our two recent books, The Future of Sales Compensation and Sales Compensation Solutions, we dedicate entire chapters to the importance of this topic. The degree and necessity of change management is somewhat dependent on the magnitude of the incentive change, and this was a big one at United. Effective change management should start early in the incentive design process and include change champions who provide feedback, act as a voice of the sales force, and aid in the rollout and communication. While it’s not clear what change management processes United used, the negative reaction and sudden reversal suggests that stakeholder groups weren’t involved early or often enough in the design process.
Although I credit United with acting quickly in response to the feedback—and understand that the lottery plan may not have been a good choice given the magnitude of change and the number of people impacted—I do believe that lottery plans can be effective in certain situations. Have you used them successfully?