Incentive Engineering
Trevor Pang
Alejandro HernandezCapital has finance teams, processes have operations teams, and software has engineering teams. The workforce is the biggest cost of all. No team owns the return on it.
What is Incentive Engineering?
Incentive Engineering is the engineering of incentives for hourly workforces.
Take a quick-service restaurant chain. Most of the costs on their P&L are already as low as they can go:
- They can’t easily cut food costs without the food quality getting worse.
- They can’t easily pay workers less, because workers would quit.
- They can’t easily pay workers more, because margins are too thin.
- They can’t easily negotiate a lower rent.
The one thing left to improve is how well their workers do their jobs. When workers do their jobs better, customers get faster service and a better meal, and they come back and spend more.
Incentive Engineering designs those improvements in worker behavior so they hold across an entire workforce at once.
It’s important that Incentive Engineering exists in large workforces. A 5% rise in on-time clock-ins barely registers at a 10-person company. At a 10,000-person company it can be worth millions of dollars in EBITDA per year.
Through Incentive Engineering a company can treat an incentive the way they treat any other investment: they set the return it has to earn before they spend it.
Incentive Engineering borrows from four trades that already exist, and none of them does the whole job.
Industrial engineers
Know a shift’s expected output, and where the minutes disappear between one station and the next.
Organizational psychologists
Have measured the change in effort when a worker can see the target instead of guessing at it.
Financial engineers
Price things. What is an outcome worth, and what should a business pay to move it?
Data scientists
Tell you the gain wasn’t all real. Half of it was the season, some was the new machine, and the campaign gets credit for the rest.
The work applies wherever many people do similar, measurable jobs: warehouses, retail floors, kitchens, hospitals, call centers, field service. If a company can measure one person’s output on one shift, they can engineer it. Jolly coined the term Incentive Engineering.
How we run Incentive Engineering at Jolly
Each campaign runs on two agents, the Data Agent and the Incentives Agent.
The Incentive Engineer and the operations team pick the problem and agree on the criteria for a good shift. The Incentive Engineer then prompts the agents with those criteria, the workers the campaign covers and its budget.
The Data Agent reads the company’s systems and sets a baseline for each worker.
The Incentives Agent sets each worker’s target, then sends points when the worker hits it.
The Incentive Engineer reports the campaign’s Return on Point Spend (ROPS). With the operations team, the Incentive Engineer decides whether to scale, change or shut it off.
The company’s team can log in and work on any campaign too.
Strategy, prompts and decisions
The Incentive Engineer
Picks the problem with the operations team, and decides with them when to scale, change or shut off a campaign.
Examples of systems of record
- timekeeping & scheduling
- point of sale
- EHR
- ERP / WMS
- telematics
- HRIS
- ATS
- LMS
Execution
Data Agent
Sets a baseline for each worker and each location.
Incentives Agent
Sets the targets, puts them on workers’ phones and sends the points.
Workers’ phones
New targets on thousands of phones before the next shift.
The Incentive Engineer
Which problem is worth a campaign at all, and whether the data exists to run it.
- Whether slow palletizing is an incentive problem or a forklift problem.
- The value of a recovered pallet at a site running 60% capacity, and at one running 90%.
- Getting the data connected. API keys, logins and IT approval come from people at the company. The Incentive Engineer handles that handoff.
- The prompt behind each campaign: the criteria, the workers and the budget the company sets.
- Whether a 5x ROPS means run it wider, or means the target was too easy.
The Data Agent and the Incentives Agent
The agents put new targets on thousands of phones before the next shift.
- The Data Agent reads the company’s point of sale, HRIS, ERP and scheduling systems. It covers every site and every shift.
- It sets a baseline for each worker and each location. Each target then fits the worker who gets it instead of a company-wide average.
- The Incentives Agent runs each campaign from the prompt. It sets each worker’s target from their baseline and the operations team’s criteria. It sends points when the worker hits the target.
- The Incentives Agent recalibrates targets as new data arrives, across thousands of workers at once. It stays inside the campaign’s budget.
- Each worker gets points only when they hit their own target.
What is an Incentive Engineer?
An Incentive Engineer has one job: designing incentives that generate an incremental return from a workforce. They own the return on a company’s incentive spend, and that return is their top priority.
An Incentive Engineer’s job has four parts:
The operations team knows the criteria for a good shift on their own floor, and an Incentive Engineer has no business telling them otherwise. The Incentive Engineer works out the dollar value to the business of one more of those shifts. Then they design the campaign that gets more of them. The Data Agent and the Incentives Agent carry it out for every worker.
Jolly hires Incentive Engineers from investment banking, private equity, strategy consulting, and engineering. Investors and bankers know how to put a dollar value on an outcome. Consultants and engineers know how to find where a process loses time and money. Either way, the Incentive Engineer reports the return in language a CFO will sign off on.
What are performance-based incentives?
A performance-based incentive pays a worker for hitting a measurable target. Three things make an incentive performance-based:
- The target is tied to a business outcome the company already measures, such as on-time clock-ins, SOP adherence, units per hour, or upsell rate.
- The target and the payout are published before the shift starts, so every worker can see the target.
- The company pays only after the worker delivers the result. If the worker misses the target, the company pays nothing.
What does an Incentive Engineer do?
Most campaigns exist to keep SOP adherence high or to improve it. The Incentive Engineer builds each campaign in four steps.
With the operations team, the Incentive Engineer chooses the KPIs and sets a goal for each.
In practice
Palletizing speed drops across three distribution centers
The three sites don’t run at the same rate. An Incentive Engineer sits down with the operations team. Together they work out the criteria for a good shift at each site. The Incentive Engineer confirms the warehouse management system records pallets per hour for every worker. The Data Agent sets each worker’s baseline from that data. The Incentives Agent sets a target above each baseline, using the operations team’s criteria. Once the operations team signs off, the Incentive Engineer launches the campaign. When a worker hits their target, the Incentives Agent sends the points.
Two weeks later the Incentive Engineer reports the incremental profit from the recovered output, and the cost of the points that recovered it.
Measuring the return
Jolly reports the answer as Return on Point Spend, or ROPS: the incremental profit a campaign produced, divided by the dollar cost of the points it spent.
Pallets per hour
Palletizing speed
Two weeks later
Points spent
$500
Incremental profit
$2,500
ROPS
5x
Source: warehouse management system
Round numbers, chosen to show the arithmetic. An illustration, not a customer result.
Here’s the most common objection to performance-based incentives and Incentive Engineering.
“I already pay them to do the job”
That’s the first thing an operator says, and it’s fair. A campaign only sends points once the worker has delivered the result. The points cost less than the result they pay for. If the gains are worth more than the points, the program has paid for itself. The difference is profit the company wouldn’t otherwise have had. A campaign that produces nothing costs nothing.
Back at the three distribution centers, the Incentive Engineer and the operations team decide palletizing speed is the problem to solve. They connect the warehouse management system and put a dollar value on a recovered pallet. The Data Agent sets a baseline for each worker at each site. The Incentives Agent puts each worker’s target on their phone before the next shift starts. Two weeks later the Incentive Engineer reads the ROPS and picks the next campaign.
Why doesn’t this role exist yet?
Look at where a large company spends money, and every major line has a specialist who owns its return.
- CapitalFinance team
- ProcessOperations team
- SystemsEngineering team
- WorkforceNo one, yet
The work does happen, in pieces, on the side.
- A regional manager invents a contest.
- An HR team renews a recognition platform.
- Somewhere in finance a year-end bonus pool gets approved, and no line in it connects to a single thing anyone actually did differently.
All of it is somebody’s side project. It’s nobody’s job to actually own whether any of it worked.
The closest role at most companies is a VP of Total Rewards.
Head of Recognition and VP of Employee Experience do related work, and an Incentive Engineer doesn’t replace any of them. Those roles own the budget and the programs. None of them has ever been the person who answers for the return on that budget.
Finance went through the same thing. For decades a CFO owned the capital, and it was no one’s job to know the return on each dollar. Then FP&A became a function, every line got a model and a forecast, and explaining the variance became somebody’s job. Rewards sits where finance sat before that. A rewards leader decides a program should exist, and an Incentive Engineer reports its return, site by site and shift by shift.
The worker-level and team-level data an Incentive Engineer needs, by shift and by site, sits in the systems most companies already run: point of sale, scheduling, HRIS, ERP. The Incentives Agent puts personalized targets on workers’ phones before the next shift. Owning the return on incentive spend was nobody’s full-time job because companies couldn’t measure it. Now they can, and they still haven’t hired anyone.
We think every company will have an Incentive Engineer within ten years.
Incentive Engineering FAQ
A performance-based incentive pays a worker for hitting a measurable target tied to a business outcome. The company publishes the target and the payout before the shift starts, and pays only after the worker delivers the result. If the worker misses the target, the company pays nothing.
Incentive Engineering is the engineering of incentives for hourly workforces. It designs performance-based incentives that change worker behavior across an entire workforce, and ties the spend to a business outcome instead of a manager’s opinion. A company treats each incentive like any other investment: they set the return it has to earn before they spend it.
An Incentive Engineer owns the return on a company’s incentive spend. They work with the operations team to discover the company’s KPIs and goals. They find the worker behaviors behind those KPIs, and the systems that record them. Then they design the campaign. The Incentives Agent sets each worker’s target from the operations team’s criteria. The points cost less than the return they earn.
An Incentive Engineer’s work has four steps: 1. Pick the KPIs to fix. 2. Connect Jolly to your systems. 3. Set targets and points. 4. Scale, change or shut off.
A worker claims points for hitting a target. Points convert into real-world rewards the worker picks, and the company only issues points once the worker has delivered the result. The spend follows the outcome.
Every campaign runs on two agents, the Data Agent and the Incentives Agent. A Jolly Incentive Engineer and the operations team pick the problem. The Incentive Engineer prompts the agents with the criteria, the workers and the budget. The Data Agent reads the company’s systems and sets a baseline for each worker. The Incentives Agent sets each worker’s target, then sends points when the worker hits it. Jolly hires Incentive Engineers from investment banking, private equity, strategy consulting, and engineering. Each Incentive Campaign is judged by its Return on Point Spend: the points are the spend, and the incremental profit is the return. The company’s team can log in and work on any campaign too.
A bonus or commission pays out after the outcome has already happened, usually quarterly or annually. A performance-based incentive goes after the daily actions that make the outcome likely, and the company measures the return on each one. A year-end bonus pool can’t give a worker a different target for Tuesday.
Recognition rewards people for being noticed, which depends on who happens to be watching that day. A performance-based incentive publishes the target and the payout before the shift starts. Every worker on that shift can see their own target, and the company can trace their spend to the result.
With Return on Point Spend, or ROPS: the incremental profit a campaign produced, divided by the dollar cost of the points it spent.
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Performance-based incentives with a return you can actually measure.
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