shutterstock_254163184.jpgIt’s notoriously difficult to develop meaningful incentive plans for airlines. We just had an unusual, and unusually public, display of that difficulty with United’s aborted attempt at switching its employee incentive program to a lottery system.

For many years, United has run an incentive program that pays a relatively small amount per employee if the company hits certain operational targets, such as on-time performance. The typical payout for the program was up to $300 per employee, per quarter. Two days ago, United announced a switch to a lottery program: If United achieved its targets, a small number of employees with perfect attendance would win very large prizes worth up to $100,000, including luxury cars, vacations and cash awards.

Employee feedback on the lottery program was immediate, negative and overwhelming (including a petition that garnered more than 1,000 signatures), and within 48 hours, United backtracked on it.

While I haven’t spoken with anyone at United, it appears that what executives were trying to accomplish was to make the program much more aspirational. The program had a relatively modest reward that was nice to have, but it certainly wasn’t hugely meaningful for most employees, and the airline instead wanted a huge reward that was highly impactful, and therefore highly motivational. United leadership clearly felt that having a large reward would create more engagement with the program. The program also echoed a long-running Continental Airlines program—which ran prior to its merger with United—that gave away a small number of Ford Explorers each year by lottery to employees with a perfect attendance record.  

So what went wrong? There are two issues with the program design. The main one is that employee engagement with an incentive program is a function not only of the value of the reward, but also the individual’s estimation of her likelihood of winning. United has more than 80,000 employees globally, most of whom would be eligible for the program, but there were only a few hundred prizes, so most employees would rightly expect to win nothing. Given that they had been getting something for many years, this was seen as taking something away. We see this kind of behavior when companies run sales contests with large prizes. Those who are in the running for the prize are quite motivated by it, but often the bulk of the sales team ignores it because they know that they aren’t close enough to be competitive.  

A second, smaller issue was tying the lottery to perfect attendance. I suspect that this was seen as putting a requirement on the operational performance that has only a small relationship to metrics. What if I was a key person in getting planes turned around at the gate, but I was sick for a day? I wouldn’t even have the small chance to win a prize. Again, this would be seen as taking something away.  

As I said up front, airlines are difficult companies to design incentives for. There are many more factors outside of the employees’ and the company’s control than in most industries. Fuel costs, weather, competitive capacity, schedule changes and demand shocks can rapidly change outcomes on a company-wide basis. As someone who has designed a number of airline sales incentive programs, I do not envy anyone tasked with designing an enterprise-wide program. Still, it feels like United fell into a bit of a trap on this one—a trap that could have been avoided.


BLOG POST: Dear Airline: You Have My Information. Now Use It. 

BLOG POST: What Airlines Can Learn from the Hotel Industry


Topics: Incentive plan design, bonus plans, Hospitality, Air Travel, Airlines, Travel, incentive plans, United Airlines