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Recession Deflates Noncash Incentives
In a down economy, companies anticipate a negative impact on incentive programs for 2009, but a well-planned, well-implemented program may be just what they need to survive.
Posted Jan 22, 2009
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The professionals within the incentive-travel industry have a fairly depressing view of how the recession will affect their field, according to the findings of a recent survey -- in fact, a whopping 80 percent of respondents foresee a negative impact on incentive travel programs, and 49 percent felt the same about other noncash incentive programs. Though some may characterize the findings as discouraging, Bob Dawson, chair of the IRF's research committee, says that he prefers to see them as "enlightening."

Participants in the latest Industry Pulse survey from the Incentive Research Foundation (IRF), "The Incentive Industry Trends Outlook 2009," included providers, suppliers, and buyers of incentive-travel offerings. Not surprisingly, their projections for 2009 have worsened since the IRF's "Effects of a Down Economy on the Incentive Industry" report came out in August 2008. Despite the deepening recession, some companies report continued benefits in their merchandise noncash incentive programs, with about 50 percent of respondents anticipating no (25 percent) or positive (26 percent) change. Dawson says this segment of the respondent pool may be more forward-thinking.

"Companies [that] have seen this as [merely] a company perk...or anything other than a real management tool that incrementally improves business and ties to financial metrics, are in for a rude awakening if [they] want to keep [their] budgets alive," Dawson says. Research conducted by the IRF has indicated that, when properly used, incentives -- particularly noncash incentives that employees cannot or would not buy on their own -- often contribute dramatic net profitability and new cash flow.

The challenge, of course, is implementing a program that sticks. Incentive programs are typically sent off to the general sales manager, operating under the radar and out of the top executives' line of vision. In a bad economy, Dawson says, corporate radar gets far more sensitive. "For so many years, our industry has been focused on rewards, and what I call ‘the sizzle,' " he says. "Then, when times get tough [and] we have [only] a dollar to spend...the incentives budget comes on the table and they say, ‘Oh, we can't afford to do that.' So they try to find a way to hide it." Even the incentive programs fortunate enough not to be eliminated completely find themselves allocated little more than leftover budget money to develop a motivating reward -- a reward that is, more often than not, inadequate as a result.

In their projections for 2009, 60 percent of respondents indicated that travel-incentive programs would shift from international to domestic destinations, up from 44 percent in the August survey. Moreover, 49 percent now plan to reduce the duration of the trip, up from 35 percent in August; and 39 percent plan to decrease on-site inclusions (e.g., hotels, resort extras), up from 33 percent.

Among those who anticipate a negative impact on merchandise noncash incentives in 2009, the study notes that:

  • 30 percent will include individual travel as an option;
  • 24 percent will increase use of debit/gift cards; and
  • 18 percent will decrease merchandise award value.

"You have to have the mindset that you're not trying to find the best value for hotels or airline tickets," Dawson says, proceeding to define the proper perspective: "We're trying to motivate change with the people who can make the change happen on our financial statement, because every number on our financial statement has a person behind it." Companies that have implemented a successful program, he adds, have increased incentive budgets by an average of 26 percent over 2007 and 2008.

The first thing to consider when implementing such a program is what Dawson refers to as "the cause and effect." Don't start with an award in mind, he warns -- start with a corporate goal. In other words, identify the potential outcomes the incentive program might lead to, and have each outcome tied to a dollar amount.

"You have to look at your entire business cycle and make sure all those things are accounted for," Dawson says. In other words, if the sales department is given an incentive to increase its sales, the back-end needs to be able to process and deliver on the sales driven by that incentive. Otherwise, Dawson says, you will have invested in something that cost a lot of money and time (the incentive program), and produced a problematic result that merely introduced additional cost (incomplete sales that lead to dissatisfied customers inundating your contact centers).

A critical component of a strong incentive program is flexibility and adaptability, Dawson says. Companies can't simply launch a program and let it run for months without adjustments. "You should watch it just as you would your 401(k)," he says. " ‘How is my money doing? Do I want to keep all my money in automobile stocks right now? Probably not.' "

The market changes -- and in order to keep or increase market share, companies have to recognize that incentive programs, too, are a competitive factor. "When you put the incentive program in place, it's not in a vacuum," Dawson says. If a competing sales team, for instance, is being motivated by a stronger package, a smart vice president will have to come up with a countermeasure to prevent losing ground. Awareness of this relationship seems to be on the rise, according to the survey: 64 percent of respondents believed competitor reactions impacted their incentive offerings, up from 47 percent in August.

Incentive programs, contrary to popular belief, aren't solely for salespeople. While tangible rewards may not be provided for other departments, Dawson emphasizes that such programs should involve all employees. "Everyone outside the sales team resents the fact that the sales team gets the incentive rewards," he says. Therefore, it's imperative to get the entire organization rallying behind the program -- a step that involves direct communication. Understand how the program will affect other departments -- develop rules to ensure that customer service isn't struggling with a sale while the incentivized salesperson is lounging in Florida. Your efforts at communication will also provide nonsales departments visibility into the sales pipeline and help them understand the potential benefits of the incentive.

News relevant to the customer relationship management industry is posted several times a day on destinationCRM.com, in addition to the news section Insight that appears every month in the pages of CRM magazine. You may leave a public comment regarding this article by clicking on "Comments" at the top; to contact the editors, please email editor@destinationCRM.com.

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