ARDS REVAMPED

Meetings & Conventions - Rewards Revamped - June 2002

June 2002 REWARDS REVAMPED
How U.S. firms are revising incentive programs to motivate a changed workforce By Lisa Grimaldi

Few incentive programs were left untouched by events of the past year. Beyond canceling or rescheduling trips, many U.S. firms made lasting changes in the way performance is rewarded.

Tighter budgets, safety concerns and altered traveler preferences have prompted some companies to choose domestic venues and to narrow the field of participants. Others are giving winners a choice of destinations or are splitting international groups into separate trips so no one is traveling too far from home.

In many cases, this year’s trips will reward last year’s winners. After Sept. 11, planners postponed and rescheduled 44 percent of trips set for 2001 and 2002; 31 percent canceled them outright, according to a survey conducted by the Society of Incentive & Travel Executives. It wasn’t just the fear factor that took its toll on programs in 2001; more than half of SITE’s respondents cited economic cutbacks as a reason for trimming or cutting their programs.

“I actually see the economy as a bigger factor [in change] than Sept. 11,” says Jeff Reinberg, president/CEO of Fenton, Mo.-based Maritz Travel Co., a division of performance improvement giant Maritz Inc.

A number of customers have had to shrink their incentive budgets for 2002 and 2003, says Reinberg. “It’s hard to predict the long-term effects [of the past year],” he adds. “We’re still a little bit in a place we’ve never been before: A war that isn’t really a war is going on, and we’re still in a recession that was supposed to be over.”

Where do corporate incentives stand today? M&C spoke with a number of professionals about changes they made over the past year to achieve current and future objectives.

Taking the reins
It has been a wild ride for Sacramento, Calif.-based London Pacific Life & Annuity Co. The October incentive program had called for a luxurious, weeklong trip to London, followed by an extended stay at the elegant Scottish golf resort Gleneagles for an elite group of superachievers. Program administration and promotion were handled by the in-house marketing department, under the direction of Charlotte Stott, senior vice president/national sales manager, while the entire travel program was coordinated by one of the company’s preferred incentive houses.

But, still shell-shocked by Sept. 11, more than half of the group of 242 did not want to travel. The firm decided to postpone the program until late April, kicking off a flurry of contract concerns and cancellation fees.

In previous years, Stott would simply have told the incentive house, “You do it all, you handle the contracts, just send me the bills,” she says. But this time, the incentive house handling the trip went out of business, and Stott was left to pick up the pieces. (In fact, because of pending legal action, she declined to name the incentive firm.) It was a difficult process, but in the long run, Stott learned some valuable lessons and put her negotiation skills to the test.

While many U.S. properties waived cancellation and attrition fees through October, “the U.K. suppliers weren’t as accommodating,” Stott says. “It wasn’t just hotels it was tour operators, theaters, etc.” And in some cases, it was clear the group had to pay up: “We were having a costume ball; a supplier had already altered two-thirds of the costumes to the participants’ measurements.”

Initially, cancellation fees ran up to nearly $150,000, but with careful negotiation Stott brought the final tally down to about $75,000. The unexpected cost will come out of London Pacific’s 2002 marketing budget; as a result, the firm’s next incentive program to Switzerland, pushed back from late 2002 to early 2003 probably will have one fewer event, says Stott.

That’s hardly the only change going forward. For one, Stott is now more security-conscious: “I’m forwarding a lot more State Department warnings and plenty of information to the participants, so they can make informed judgments.” At the same time, she adds, “I don’t want to scare them away.”

These concerns have led to another change: London Pacific is rethinking the type of destinations it will select in the future. “We’ve done pretty innovative programs in the past 13 years,” says Stott. Exotic locales have included Bali, New Zealand, South Africa and several parts of the U.K., partly to play on the company name by visiting regions of the former British Empire. But for 2004, she’s considering Hawaii. “I have a comfort level there, as do our agents,” she explains.

Also, London Pacific’s name is now on every contract, rather than the name of an incentive house. For the postponed 2001 program, says Stott, “We were working with the Le Méridien Grosvenor House in London, but I couldn’t get information about the original contract because our name wasn’t on it.”

But the biggest change is yet to come. After replanning the entire London program, from rebooking room blocks to hiring customs brokers sans outside help, “I’m finding that we’ll be able to operate some of these trips ourselves going forward,” says Stott. “We have a lot more confidence and knowledge now.”

Travel all the way
In hindsight, 2001 was the wrong year to step up the emphasis on travel incentives. But while it cost a quarter of a million dollars in penalties, PSS/World Medical Inc. is staying the course.

The Jacksonville, Fla.-based medical supply distributor, which spends about $2 million a year on incentives, surveyed its 1,100-member sales staff in early 2001 on the type of motivation programs they preferred. “Our people told us travel was the best reward outside of cash,” says John Sasen, executive vice president, chief marketing officer for the firm. “In some cases, they preferred it to cash.”

The marketing department decided to intensify its investment in travel and double the number of incentive programs it offered, switching from one 12-month contest to two six-month contests annually, to give more people the chance to win a trip.

Timing was poor, to say the least. “I had $500,000 invested in a program to Brazil and Argentina that was to leave Oct. 5,” says Sasen. Not only were winners wary of traveling, Argentina was in the midst of political turmoil, and there was an outbreak of dengue fever in Rio. After considerable angst, the company postponed the program and tentatively rescheduled it for April.

In the months that followed, “we queried participants several times to see if they still wanted to go,” Sasen says. As of February, about two-thirds were still wary of traveling so far from home, so he scrapped the South America trip and planned a replacement program to Maui. The move cost the company about $250,000 in cancellation fees and penalties, but, says Sasen, “the winners still needed to be rewarded.”

Sasen is committed to keeping travel as the company’s sole motivational tool, but it has been a challenge convincing the firm’s number-crunchers still reeling from the quarter-million-dollar blow. “Our operations people are nervous,” the executive admits. To regain their support, he outlined the bottom-line results of travel incentive programs vs. merchandise and cash. In the end, he says, they agreed the risk was worth it, since travel programs had produced such strong results compared with other types of motivation in the past.

Another major change: “Now, rather than choosing the destinations ourselves, we give participants a choice between two destinations,” Sasen says. If two-thirds of the group prefers one destination, however, only that one trip is offered.

Also, Sasen has to be convinced a destination is safe before he will even begin to consider it. “I think Western Europe and the Pacific Rim are good choices,” he says. “We recently went with Fiji and New Zealand for 2003. I’m staying away from hot spots; I’d like be creative in exploring the world, but the world must convince us that it’s safe and secure. I don’t want to hold an incentive program that turns into a negative incentive.”

Split decision
One high-tech firm has decided to split its U.S. and European sales forces into two groups with two different rewards for 2003: The U.S. group will head to the Cayman Islands, while European counterparts head to Malta.

The move is intended as a cost-saving measure by the company, says Deidre Underwood, the director of business theater at Ft. Lauderdale, Fla.-based ME Productions, who is arranging the two programs. With smaller room blocks, the company will have more hotels from which to choose and thus more leverage in price and contract negotiations. Also, until this year, the Europeans, who had to travel farther, spent one or two extra hotel nights and were out of their offices longer than their U.S. counterparts.

“The company thinks splitting the group will be a cost-effective solution,” says Underwood. But she’s not so sure they’ll achieve that result, once the extra costs of two A/V crews, theme parties and other expenses are factored in. She also fears the number of European qualifiers won’t be as high, because the prize will no longer be what was for them an exotic destination in North America. The programs are scheduled to take place next May, so the company won’t know if this new policy has paid off until then.

Staying close
After Sept. 11, Irvine, Calif.-based Kawasaki Motor Corp., U.S.A., switched the destination of its 2001 program for top dealers from South Africa to Hawaii, says Barry Beehler, vice president of marketing. The move was based on comfort levels, not cost. “Fortunately for us, the power-sports industry usually does pretty well in a down economy, and sales and market share have both increased, particularly during the first quarter of 2002,” he adds.

Across the board, domestic destinations are hotter than ever for incentive groups, sources agree. “Before Sept. 11, the RFPs coming in were for exotic locales, like Dubai and Nepal, and this is not happening now,” says Ann Klein, marketing manager at USMotivation, an Atlanta-based performance improvement company. Today’s clients are looking for “jewels in the rough in the U.S.,” she says.FlightTime.com, a charter aircraft firm based in Waltham, Mass., also is seeing more interest in destinations closer to home, says D.C. Clarke, director of incentive sales. The charter airline provider has experienced increased business to North American locations, including California, Florida, Hawaii, Mexico and the Caribbean, rather than long-haul or hard-to-reach destinations.

Maritz’s Jeff Reinberg agrees that programs, for the time being, will be “shorter, nearer and smaller.” As for destination trends, he says, “international is down; Europe is soft and so is Asia,” with the exception of Hong Kong and mainland China. “Interest is high in indulgent domestic travel: A luxurious hotel with spa, beach and golf is what they are looking for right now.”

Another knee-jerk reaction to 9/11 was that some firms decided to charter planes for their groups. FlightTime.com saw a dramatic increase in business, particularly from pharmaceutical and investment firms, who cited security and convenience as the reasons they wanted to use private planes.“We’ve also seen corporate travel policy changes; instead of saying they don’t want all their people on one plane, now many want them on the same aircraft,” says D.C. Clarke.

But these reactions are temporary, she predicts, and pre-2001 patterns are expected to resume. “We’ve seen these fluctuations before,” Clarke says.

More ripples
Other trends are emerging and continuing to reshape the incentive industry. Among them: Safety to the fore. “We spend more time talking about security, looking at State Department bulletins and going over security procedures with suppliers during pre-cons,” says Marcia Willet, senior director, corporate events, for Santa Ana, Calif.-based high-tech firm Ingram Micro. Her incentive programs are typically five-night trips to destinations in North America.

Smaller numbers. One trend noted in the industry is that the number of participants is shrinking. At Ingram Micro, program attendance has dropped off by 8 to 12 percent since Sept. 11. “Even after people have qualified, they don’t come because they don’t want to travel at all or be away from home,” Willet says.

Despite the drop-off, Ingram Micro still plans to offer travel rewards in the future. According to Willet, “In a questionnaire we did a few months ago after an incentive to Hawaii, participants said they still were motivated by travel and wanted the company to continue sponsoring travel incentives.” Bill Vastine, executive president of Galactic Marketing Incentives Inc., a performance improvement firm based in Arlington, Texas, also sees slightly smaller groups, from, say, 400 to 370; but he attributes the drop-off to firms trimming back on the number of the total qualifiers. The reasons, in his clients’ cases, are budgetary cutbacks.

Cooperative suppliers. One positive change: Some planners say suppliers have become much more flexible in the past year. “We forged much better relationships with hotels after 9/11,” says Willet. “We had to renegotiate 30 or 40 contracts in the aftermath, and they were great. In the past few years, they were much stricter about renegotiations.”

Higher stakes. Some firms are tightening up their contest goals, making it harder for participants to qualify for programs; in some cases, they’re narrowing the field of participants. “They used to be more open to more groups of people,” says Deidre Underwood. “They can’t cut programs out completely, but they can shrink the size of the group.”

Doubling up. For several clients whose reward budgets have been clipped, incentive firm Maritz has recommended combining their resources with those of another company department, such as training, to hold a joint event or a combination sales meeting/incentive program, according to Jeff Reinberg.Hedging their bets. Many companies are waiting longer to finalize plans and commit to suppliers. FlightTime’s D.C. Clarke had a client call in April to book two wide-body jets for a program held in May. “It has never been as close as it now,” she says.

Galactic’s Vastine also sees a marked increase in clients’ foot-dragging.

“We are finding it’s harder to get people to make decisions,” he says. In some cases, he adds, companies are signing off on trips three or four weeks before they are scheduled, whereas in the past, they’d sign off at least six months in advance.

Vastine feels this is due to the economy and not to post-9/11 travel jitters. “They want to wait and see how their finances are faring,” he says, adding that the economy isn’t recovering quite as rapidly as people initially expected it to.

“The only cancellation we had for a program last year was a distribution firm that was having financial difficulties; they felt it wouldn’t look good to send people on a trip at a sensitive time,” he says.Staying the course. In a few cases, incentive programs remain virtually untouched by the events of the past year. Medina, Minn.-based UnitedHealthcare, for one, always holds its incentive trips in North America. This year’s winners top underwriters and sales and account managers enjoyed a weeklong trip to Mexico in April that went ahead as planned. The only fallout, according to Kate Moher, director of performance and recognition, was that a few winners opted not to bring their spouses, because “they had small children and still had fears about both parents traveling away from home.”

Yet, everything went perfectly, says Moher. What program changes might UnitedHealthcare make in the near future? Says Moher, “not a thing.”

Winner’s Choice

Is it possible to choose an incentive destination that will please most participants? That task is more challenging than ever, due to the range of personal comfort levels regarding travel today. The solution for one firm was to cancel its trip to Rome, scheduled for this spring, but offer the 150 winners a choice of several individual trips.

For those who still want to travel, the company, a heating and air-conditioning firm, asked its incentive house to create a series of travel packages, including airfare, hotels and various amenities. Among the choices are Rome; Paris; Palm Springs, Calif.; Hawaii; St. Thomas, U.S.V.I.; Mexico, and a Caribbean cruise. The hottest tickets to date: Hawaii and the cruise.

“I think a lot more firms are going to move to individual travel awards; I’m definitely seeing that in my business,” says Bill Ryan, president of Travel Round, the Memphis-based incentive firm handling the program. In addition to giving winners the power of choice, says Ryan, since individual trips are booked much like leisure travel, there’s no need for firms to make the hefty deposits required for a large group program.

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SHOW YOUR ROI

Most incentive programs are intended to boost a company’s bottom line by improving productivity, increasing sales or promoting employee retention. But unless a planner can clearly demonstrate those benefits to higher-ups, incentive budgets and even the programs themselves can be jeopardized in times of economic turmoil, according to Anne Turnbull, senior analyst for Mississauga, Ontario-based Maritz Canada Inc.

A noted ROI (return on investment) expert in the incentive industry, Turnbull helps corporate clients track and analyze their programs. She is also one of the architects of the new “Maximize the Value, Measure the Return” seminars created for corporate incentive planners by the New York City-based Society of Incentive & Travel Executives.

ROI measurement tools should be put in place at the beginning of the program, says Turnbull. And management should take an active part in the program from its inception. “Planners need management and finance to sign off on the measurement methodology at the beginning,” she stresses. Other smart tactics for determining ROI:

• Set baseline figures upon which measurements will be determined.

• Take measurements at intervals during the course of the program, rather than waiting until the end to check results. This allows for adjustments to be made if the numbers aren’t on target. “There should never be a surprise at the end of the day,” Turnbull says.

• Consider external factors that might affect a program, such as competitors’ programs or a weakened economy, and find a way to financially quantify them.

• Write it up. The final ROI report can be as detailed or as simplified as the tastes of top executives dictate. The key is communicating the facts in a format that can be readily understood.

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THE GOODS ON MERCHANDISE

“When the economy tanked and then 9/11 came, everyone predicted merchandise was going to boom and travel would die,” says Bill Vastine, executive vice president of Arlington, Texas-based Galactic Marketing Incentives Inc.

But that’s not what he’s seeing with his clients. “While there is a lot of interest in merchandise, the folks that did travel are still doing it none of our clients have switched,” he says. Instead, they are looking at merchandise as a way to reward nonsales employees who might have missed out on perks when budgets and staff were cut.

Twenty of Maritz Inc.’s clients did switch their rewards from travel to merchandise after 9/11, according to Maritz Travel Co.’s president/CEO Jeff Reinberg. He doesn’t think the switches are permanent, but going forward, more companies will offer participants a selection of awards that include both travel and merchandise, he believes.

Merchandise did fill a need this past fall: After postponing travel programs, a number of firms gave winners “immediate rewards,” including travel vouchers for weekend getaways close to participants’ homes.

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