THE OUT CLAUSE
Though no one wants to mislead or disappoint incentive winners by switching the rewards or even canceling, market changes or unforeseen economic woes might leave little choice.
As a protective measure for the program sponsor, Chicago-based attorney Jonathan T. Howe, Esq., right, of Howe & Hutton Ltd., recommends including an adjustment clause in the fine print of the program plan or anywhere the incentive is promoted, such as in the contest rules or on a website that promotes the incentive.
Howe suggests the following wording: “This incentive program is designed to provide you, the potential award winner, with an outstanding experience. Conditions, unfortunately, might change for many different reasons, some of which are beyond our control, and might require the company to alter or even cancel the program as a result.
“Additionally, management might find it necessary to change the rules for eligibility and participation levels. It is necessary for the company to retain and reserve the right to amend or otherwise change these rules or to terminate the program without liability as the company solely deems appropriate.” -- L.G.
In these fiscally challenging
times, with so many companies under the gun to keep
spending down, it would seem like a no-brainer to eliminate any
costs except those essential to the firm’s bottom line. At first
glance, incentive programs would seem like one of those expenses
that could painlessly be put on a back burner or even
eliminated.
That was the case for troubled mortgage
lender Countrywide Financial Corp., which canceled two incentive
programs that were slated to take place this spring in Hollywood,
Fla., in the wake of a financial meltdown earlier this year. And at
Citi Commercial Business Group, a Harrison, N.Y.-based division of
Citigroup that handles commercial real estate, plans for this
year’s incentive program are on hold due to companywide
belt-tightening, according to Barbara Blumhof, manager, trade shows
and events.
On the other hand, not all incentive
professionals regard such cutbacks as inevitable -- or advisable.
“Fifteen or 20 years ago, there was a knee-jerk reaction to cut
programs when the economy looked bad,” says Karen Renk, executive
director of the Naperville, Ill.-based Incentive Marketing
Association. Companies today, she adds, are far less likely to
respond this way, because they have learned how important it is to
keep employees engaged and productive through motivation and
recognition, even (or especially) in the face of downsizing.
Following are the examples of two
firms -- both in hard-hit industries -- that feel incentive
programs, now more than ever, are essential to their survival, as
well as advice from pros on how firms can keep their programs up
and running during a bumpy economy.
Keeping rewards in
gear
Michael J. Kennedy, manager, retail
development, at Cerritos, Calif.-based Isuzu Commercial Truck of
America Inc., has kept the company’s Winners’ Circle program for
sales reps active despite a merger, a sell-off and a run of three
CEOs since he began to oversee the travel-based incentive program
in 2000. He’s now planning the trip for 2009.
“If you polled our salespeople, it
would be right up there as one of the reasons they want to work for
us,” Kennedy says of the incentive program. “There would be a
revolt or coup if we took it away. It would be devastating to
business. We are, after all, a small fish in a big pond [of
commercial trucking firms]. We have the annual program in order to
keep the attention of salespeople and managers, who also sell other
brands of trucks.”
The Winners’ Circle is a tiered
program, with platinum and gold winners earning a lavish tropical
getaway each February; silver winners win a travel reward to a
domestic destination, such as Las Vegas; and bronze winners are
rewarded with merchandise.
Though Kennedy says the program ends up
paying for itself in increased
sales, he does have constraints. His yearly budget has not
increased since 2001, and if sales projections go down, he says,
the program budget similarly shrinks, which translates to fewer
winners.
“It is a big challenge to provide the
type of service and innovation our winners have come to expect,”
Kennedy says, noting that a majority of them are repeat winners. He
credits the team at Ambassadors International, the incentive and
meeting firm based in Newport Beach, Calif., for their negotiating
skills in getting his group value-added extras such as comped
receptions and room upgrades, as well as for their ability to find
lesser-known or new hotels that dazzle attendees but are less
costly than some bigger-name properties. For example, the
just-opened Agua Caliente Hotel and Spa in Desert Hot Springs,
Calif., will host the silver winners in 2009.
The key, says Kennedy, not only is to
take winners to a great destination, but to prevent them from
having to “dig into their pockets” for anything during the trip, to
help make the program more enticing than his competitors’.
Kennedy demonstrates return on
investment for the program with a report that goes to higher-ups at
Isuzu Commercial Trucks. “We do a recap of sales for the year and
show what the percentages are from winners,” which, he adds, are
always significant.
While the company’s business
projections for 2008 are mixed -- shortfalls were expected the
first half of the year, followed by more upbeat predictions for the
third and fourth quarters -- Kennedy is planning ahead for his 2009
trip and beyond. “It’s shortsighted to cancel programs,” he says.
“I won’t say the spending won’t be reduced, but it won’t be
canceled. It’s all about how you present the program and its street
value -- the enjoyment participants get from it.”
WAYS TO CUT
COSTS
Following are smart ways to trim the expense of
an incentive trip without sacrificing the impact of the reward.
* Shorten the program.
Just one day fewer can result in huge savings for the
host organization.
*Loosen the
structure. Does every meal or activity have to be hosted
by the company? Increasingly, participants appreciate some free
time and unplanned meals.
*Drop a
tier. If you traditionally use a five-star property,
switch to a four-star or hold the trip during a shoulder season
rather than peak.
*
Piggyback.Hold the incentive just before
or after another event, such as a sales meeting or industry
conference, to cut down on travel costs.
“Just be sure to maintain the integrity
of the event, making sure it’s a once-in-a-lifetime experience and
the recognition remains in place,” says Lynn Randall, strategic
meetings consultant for Fenton, Mo.-based Maritz. -- L.G.
WHERE THINGS STAND
While some firms remain committed to holding incentives in times of economic hardship, others are pulling back.
“Across the board, there is concern,” says Steve O’Malley, vice president, strategy and industry relations, for Fenton, Mo.-based Maritz Inc. “Some industries, like home building and mortgage lending, have been dramatically hit. Some have had to cut programs that were planned for 2008. Moving forward, I have a feeling there will be cancellations, and some programs that are kept may not have as many participants.”
Karen Renk, executive director of the Naperville, Ill.-based Incentive Marketing Association, said her members, mainly third parties and suppliers, claim business is strong and they expect it to remain so.
Mary MacGregor, above, vice president, marketing and business development, for BCD Meetings & Incentives in Minneapolis, said that at press time, “We are not seeing any significant changes to clients’ programs.”
Incentive business, particularly for U.S. firms, was up for the first quarter of 2008 at HelmsBriscoe, the Scottsdale, Ariz.-based global site selection firm, according to Bob Gilbert, senior vice president.
On the other hand, Nancy Chapman, account executive at Newport Beach, Calif.-based Ambassadors International, said two of her firm’s clients have canceled programs. -- L.G.
Serving up
motivation
The annual incentive trip run by a
large Midwestern restaurant food supplier (the company’s legal
department would not allow its name to be used) is called the
President’s Cup. The program has been in place since 2002.
Although the firm has been hit by
rising food and fuel costs, the top brass is convinced the program
is essential. “It’s not just a sales tool -- it’s also a retention
tool,” says the vice president of marketing. “Instead of a
line-item expense, we look at it as a line-item investment in the
health of the sales organization.” Elimination of the program for
budget reasons, he says, was up for discussion not long ago, “but
our CEO said in tight times, you take care of people who bring
results. If you cut something like incentive travel, what you are
saying to them is that their success now is not as important as it
was in times past -- while now it is needed more than ever.”
To qualify, winners have to be among
the top 3 percent of sales producers (based on volume and gross
profit) for their divisions during the fiscal year. For the
com-pany’s most recent program, 550 participants enjoyed a
Thursday-to-Sunday resort stay in Fort Lauderdale.
The vice president points out that not
only are the trips integral to recognizing top performers, they
also foster good will with winners’ spouses/partners. “If you work
for a company that takes good care of you, the [spouses] are happy;
if it’s a shoddy firm, they can counsel the employee to leave,” he
notes.
Calculating return on investment is
easy for company stakeholders. “We look at sales made by the people
in the room, and it’s a large percentage of our total gross
profit,” says the executive.
In sum, he says about the idea of
cutting incentives in hard times, “We are not going to save our way
to prosperity.”
Survival
strategies
While the planners at Isuzu Commercial
Trucks and the food supplier know their top brass have given the
green light for programs this year and beyond, others are less
certain about the future of their incentives. Following, industry
experts share their tips for ensuring that programs survive a rough
economy.
* Structure soundly.
Mary MacGregor, vice president, marketing and business development,
at Chicago-based BCD Meetings & Incentives, says to be sure to
create the contest portion of the incentive program (wherein
requirements are set for winners to achieve the reward) with
clearly defined goals. If it is set up right, the program should
incrementally pay for itself, she says.
“Most incentive programs are set up to
achieve some type of stretch revenue goal, beyond the quota,” notes
MacGregor. “That stretch money is what should be funding the
program. Most clients spend from 10 to 20 percent of that money on
the program. The rest provides additional revenue or funds a
revenue gap.”
* Involve the
number-crunchers. Traditionally, incentive programs were
overseen by the sales and marketing departments. Today, the CFO
likely will be involved, and that’s a good thing.
“Involve someone from the financial
area of your organization to see the cost of the program as more
than a spend, and engage them up front with the goals, contest
structure, etc., so they understand incentives and to help ensure
your program remains intact,” recommends Lynn Stadler Randall,
strategic meetings consultant for Fenton, Mo.-based Maritz.
Planners have gotten used to working
with finance over the past few years, adds Randall. “The whole
aspect of corporate transparency and procurement’s involvement has
made it less of a jolt for both sides,” she notes.
* Measure well. “ROI
is more important than ever, as are return on objective and return
on event,” says Mary MacGregor. “Sometimes the latter are easier to
quantify right after an event than ROI, because they might be about
driving certain behaviors, like better safety at a plant or a
quicker rate of customer service calls. We also are seeing clients
integrate soft measurement into programs, such as getting dealers
to adopt new technology. The company has to put quantitative value
on what you want to drive, so it’s not just about hitting number
goals, but also learning a new sales technique, program or
software.”
Steve O’Malley, vice president,
strategy and industry relations for Maritz, agrees. “We have some
customers that use the meeting as a task force on a specific topic
or product, or as an incubator for new ideas the firm wants to test
before launching to all employees.”
* Modify the program.
If the budget has been cut or simply doesn’t grow to stay in step
with rising hotel and travel costs, consider modifying the program
to some degree (see “Ways to Cut Costs” above).
* Give it positive
spin. Another option for companies under the gun, says
Randall, is for the trip to be down-scaled to a less showy property
or destination, or to redesign the program with a real “give-back”
angle: Hold it in a destination that has been through hard times,
such as New Orleans, or one where acts of good, such as helping to
build a school, would be appreciated and could even generate some
positive press.
PRESENTING PROOF
Need to convince the CEO about the
power of incentives? Be armed with research. A number of studies
back up the effectiveness of workplace rewards; organizations such
as the Incentive Federation (www.incentivecentral.org), the Forum for People
Performance (www.performance.org), the Society of Incentive &
Travel Executives (www.site-intl.org), the Incentive Marketing
Association (www.incentivemarketing.org) and the Incentive Research
Foundation (www.irf.org) all offer studies and white papers on the
topic.