As I watched the Golden Globe Awards earlier this month, I pondered why these awards shows exist, why they need a lavish party and why it’s all televised. What “value” is there in spending tens of millions of dollars just to hand out awards to people who make millions of dollars themselves?
I have received similar inquiries from CFOs when it comes to annual recognition trips, often referred to as “President’s Club”, “Winner’s Circle”, or something similar. These trips typically are awarded to the best performers of the past year, perhaps the top 10%. Winners receive a trip to an exotic location and are honored at an elaborate ceremony in which a senior executive hands out awards based on last year’s sales performance. CFOs wonder why the company should pay for such a perquisite, largely giving an expensive trip to people who could afford to take an expensive trip on their own, thanks to the significant amount of incentive pay that they earn.
Any vice president of sales will tell you that the annual recognition program drives more incremental performance—especially among top performers—than any other incentive program outside of the core incentive plan. Here’s why.
Psychologist Abraham Maslow came up with the “hierarchy of needs” in the middle of the 20th century to describe five levels of human needs, starting from the very basics of survival (such as food and sleep) and going all the way up to self-actualization. His theory states that once you achieve the needs at one level, you instinctively move up the hierarchy, seeking to have those higher-order needs met next.
For example, we have seen time and again that once top salespeople have overachieved their quotas and are making significant money, they often stop being motivated by earning even more money. Additional incentive pay loses its luster, but public recognition—and the nice trip that comes with it—still drives performance. This is evidence of the reps’ need for esteem kicking in, the fourth level of needs in the hierarchy, which includes achievement, prestige and respect from others.
If you remember back to your Econ 101 days, the supply of labor famously has a “backward-bending” supply curve. In other words, as you increase somebody’s pay per hour, the person eventually will begin supplying less labor: the opposite of the supply curves’ normal tendency. This is true with top salespeople without the added incentive of an annual recognition program. Money no longer motivates, after a certain point, but esteem does.
The Golden Globes and an annual sales recognition program are symbols of excellence, honoring top performers in front of their peers. If you don’t have an annual recognition program or are considering abandoning yours, I would strongly suggest that you reconsider. It’s an incredibly important part of an overall incentive and recognition strategy that will ensure that your top performers will continue to exert effort even when the motivational value of money wanes.