Incentives reinvent themselves after the recession's knock-out punch

The incentive industry has received a beating in the public arena. The AIG effect and the recession have left a sizable bruise on this sector, with costly cancellations, increased media scrutiny and decreased morale. Whether the blows were deserved or undeserved is not the issue at hand: What matters now is that incentives are picking themselves up and getting back into the game.

In some cases, the incentive segment has fought the fight and lost, but companies are taking the lessons of the current economic climate in stride and using them as ammunition for future programs and awareness campaigns. Industry professionals are becoming more like champion fighters; their moves are deliberate, strategic and swift.

Ringside Seats

Earlier this year, Smart Meetings had the opportunity to be a part of a focus group during The Insurance Advisory Council Conference at the incentive-worthy Claremont Hotel in Berkeley, Calif. The annual event was put on by Lynette Owens & Associates, a hotel marketing and representation firm that specializes in the financial and insurance markets. The company also plans corporate incentives, meetings and special events. We spoke with eight insurance executives about the state of the industry, trends, incentives, challenges, perceptions and more.

The Match

The current climate circling around incentives has had companies questioning whether or not they should host an incentive trip at all. But the decision to forego a motivational trip could greatly damage your company’s bottom line. Melissa Van Dyke, president of the Incentive Research Foundation, says not having an incentive “would be detrimental to people’s culture and performance.” Bruce Seymour, senior vice president of Wells Fargo Investments, agrees. He likens an incentive trip to a trade show, where attending a vital industry event might be expensive, but will also pay for itself with lead generation and new business. “I can’t afford to go there, but can I afford not to?” he said.

According to a 2002 Gallup Poll, your company can’t afford not to. The poll results estimated that actively disengaged workers cost the American economy up to $350 billion annually. These disengaged workers are not incentivized to put in their best effort on behalf of the company.

Compare that to the fact that U.S. organizations spend more than $100 billion per year on meetings, conventions and incentive programs (according to the IRF’s CEIR 2008). Of that, roughly 5% is spent on incentives—or $5 billion. By those calculations, we lose 70 times more money on unmotivated employees than we spend on motivating them.

Engaging your workforce is not about throwing money at a trip or a merchandise award; it is about putting together the proper type of incentive program. “Companies are more deliberate with all aspects of an incentives program—it’s become a necessity,” Van Dyke says. “The suppliers are forced to go back and justify every element of the program, and everything is up for question.”

Dealing with various interests in executing an incentive plan is a balancing act, one that involves agility and precision (like Muhammad Ali says, “Float like a butterfly and sting like a bee”). Luckily, the industry is gearing up for the challenge: They are suited up and ready to get back in the game.

Rolling with the Punches

Perception, perception, perception are still the words echoing from the ring. We are not quite out of the woods in terms of the perception of extravagance. The IRF’s Spring 2010 Pulse Survey found that 64% of respondents were “sensitive to the perceptions of program extravagance to the extent that it would impact the type of company program awards and inclusions.”

Many industry professionals, as well as those in our focus group, say that they have had to cancel a meeting because of perception. There is still a common fear of being “found out” by the media à la AIG. One of our focus group attendees said that his company cancelled a trip for 600 people in Maui at the last minute due to perception. “We are not happy about it. In fact, we felt kind of strong-armed into making that decision,” he said. Adding insult to injury, the trip was already paid for, and it ended up costing his company more to cancel than to go forward with it.

Promoting the Fight

While perception is top of mind, high performance is the objective of incentives. The recession affected more than just the incentive industry, as staff members (across the board) and operating costs were cut. Obviously, Van Dyke says, having an engaged and motivated staff in the midst of a recession where you are trying to do more with less is paramount. “They are more important now than ever,” she says.


   The Ritz-Carlton Cancun.

As an example, the Police and Firemen’s Insurance Association spent more money on their incentive programs recently. “We want the sales to come in a little stronger. If we reward our people with a nicer trip or an extra day, they tend to go out and work a little harder. Our incentives have gotten a little longer and a little more expensive, and it has worked out for us,” said Mark Kemp, president of the association.

The Site International Foundation has also reported a rosier outlook for incentives. In its “Site Index: Annual Survey,” 62%  of respondents said they expect an increase in motivational travel use in the next 6–12 months, with 84% predicting improvement in a 1–3 year period.

In a time when ROI and the bottom line are heavyweight champs, tracking the results of any meeting is also vital. But when it comes to incentives, the results are built in from the start. “If you do the qualifications correctly, that is the ROI. They have already produced the desired result; this is their reward,” said Tom Nicholson, vice president of sales and marketing for Sioux Falls, S.D.-based DakotaCare.

You can track financial ROI metrics and impact on the retention of top performers (who are jumping ship to competitors), but you can also take a more holistic approach to tracking benefits, Van Dyke says. “The master measurement model talks about different ways to measure different performance and program metrics. We just did a study on an incentive travel program, and we also looked at the impact of the ancillary benefits of the program, which is what came through stronger. When these programs are crafted and executed properly, they become embedded in the performance culture,” she says.

Packing a Punch

The industry’s stats prove that incentives do work. According to the IRF’s white paper Incentives, Motivation and Workplace Performance: Research and Best Practices, “incentives can improve performance anywhere from 25 to 44%, but only if conducted in ways that address all issues related to performance and human motivation. The study found that most organizations lack the knowledge or will to create properly constructed programs that yield desired results.”

Many organizations have learned their lesson and are working more strategically on crafting incentives that are aligned with company goals. Deliberate planning has become a necessary component. Understanding the purpose of incentive travel and going back to its meaning are also helpful in planning and defining the scope.

The IRF defines incentive travel in its white paper Anatomy of a Successful Incentive Travel Program as “a motivational tool to enhance productivity or achieve business objectives in which participants earn the reward based on a specific level of achievement set forth by management. Earners are rewarded with a trip, and the program is designed to recognize earners for their achievements.” Or, as Bob Thomas, vice president of Texas Life Insurance Company, put it, “They know what they have to do to go [on one of our trips], and that drives them a little bit more. At the end of the year, they stayed in that top 10, so they could come a day early and do that extra stuff.”

With this in mind, companies can reevaluate their incentive plan. Prior to joining the IRF, Van Dyke worked with Fortune 500 companies crafting incentives and recognition programs at Maritz Inc. When looking broadly at an incentive plan, whether it is merchandise or travel, she suggests five key areas of focus:

1. Zero in on key business goals that you want the incentive to support. What are you trying to improve in terms of business performance or culture?
2. Make sure you have a clear line of sight in terms of the program itself.
3. Communicate, communicate, communicate: before, during and after.
4. Build in opportunities for measurement of what you are doing (both the tangible and intangible metrics), such as what the attendees are saying and how they feel.
5. Make sure that you are getting feedback from your employees on how they are motivated by the goals that have been set. You need feedback on the reward as well as the structure of the program. This helps ensure that the program fits with your culture and your business plan.

Once you have purposefully constructed your program and allocated a budget to it, planning the trip is the next step in the process. The incentive destination itself plays a major role in motivating the team, and companies are selecting alluring locales more carefully. “Where we go now has to be a place our agents would never go [on their own; or have never been] before. They would never pull out their own wallets and pay for it,” said Mike Belz, president and CEO of San Antonio-based Catholic Life Insurance Company. “It’s more strategic, and our end result is to increase sales. We make no bones about it. We are thinking a bit more about where we want to go.”

Clever New Moves

As a part of the planning process, and in response to negative perceptions, the industry has moved beyond the ol’ one-two punch. The schedule and the structure of incentives are being modified in order to help companies work with their often-smaller budgets, fly under the radar and better meet company objectives.

“Most of the changes I’ve seen are primarily in the size of the group, less meetings and more interest in speakers and motivational programs. They are a little shorter than they used to be—not necessarily closer to home—it all depends on cost,” Owens said. “If they can travel to an exotic location for the same price that they could go to a domestic location, [they might go abroad]. It’s just a matter of dollars.”


   Lobby of the Claremont Hotel, Berkeley, Calif.

Looking for ways to cut costs has shaped many of the industry’s new moves. All companies are trying to shave expenses, from limiting bar tabs to decreasing the frequency of incentives. One popular way to keep costs down is booking all-inclusive venues, such as cruises and resorts, which are often found in the Caribbean and Mexico. Debbi Grassi, western regional director of sales for Lynette Owens & Associates, said that she has worked with clients in the past who really liked all-inclusives. “They like them because they know what their cost is going to be at the end. They might go someplace else where the final cost is a big question mark, but in an all-inclusive, they know exactly what they are going to pay,” Grassi said.

Power to the People

Many of the participants in our focus group mentioned that their companies are (or are thinking about) adding in more meetings and educational components. At the Annual IRF Invitational she attended with more than 400 buyers and suppliers, Van Dyke says the main thing they heard about was the merger of education and meetings with incentive and travel, as well as the addition of CSR.

More organizations are seeing the value of helping people during a rewards trip. “I attended two meetings where the parent company tied the event into charity. All the money went back to the local charities,” DakotaCare’s Nicholson said. Besides the inherent feel-good aspect, “adding in education and charity are some of the things that you can do to get away from that negative perception and the media perception,” he said.

Keith Smith, director of meetings and incentives for Salt Lake City-based Allegis Advisor Group, said that his company has also added CSR to its incentives. “People really work to qualify for the humanitarian trip. They work like crazy because they really want to go. Then they sleep on cots in the middle of the jungle someplace,” he said. “But they really get a lot of satisfaction out of being able to do something like that. So, that has paid off almost as much as the typical sales conferences.”

Owens said that one of her clients, the National Insurance Marketing Association, has also included some give backs. “We used to give speaker gifts, but it got to the point of how many golf shirts can you wear. In the last couple years, we shifted toward giving a check to the Free Wheelchair Mission in their name as a speaker gift, and actually it has been very well-received,” Owens said.

Joan Palmtag, western regional director of accounts: corporate meetings and incentives for the Hawaii VCB, has recommended to her clients that they incorporate CSR into their programs. In fact, the bureau is launching a CSR portal to facilitate the integration. If your destination has not launched a formal program, ask your CVB representative or your hotel sales person about local CSR opportunities and areas of need. This is a good jumping off point; at the same time, you can conduct your own research or work with an international charity on the local level.

Time in the Ring

In addition to changing up the content of incentives, booking with shorter lead time is another emerging trend. “I have also noticed that we are not scheduling things as far out as we used to. At this point I would have had things scheduled for 2012, but I don’t even have the spring of 2011 booked yet,” Smith said.

Palmtag agreed and added, “People seem to be waiting longer to release the funds to have the program. Between the time the program starts and ends, we have a month or two to get the actual numbers to produce the program. Before that, we may have been booking into 2013 or a year out.”

The duration and frequency of incentive trips has also been changing: The trips have gotten shorter or they occur less often. Many of our industry professionals mentioned that incentive trips are also combined with other trips or tiered with different components to reward top performers. Another popular option is to conduct more frequent, regional incentives throughout the year, so as not to attract media attention but to keep the motivation going. “Changing the length of the program just mirrors what is happening in the business planning process. You are now down from five-year to one-year and three-month business planning cycles. Companies have adapted incentives to fit the business needs—booking windows are shorter. That’s what is happening in the wider business-planning environment,” Van Dyke says.

Qualifying for the Match

Another hot, new move in the ring: the qualifications for incentive trips have been adjusted to the current business climate. “The qualifications are more deliberate; they might have had components that weren’t thought through in the past. [Companies are now asking] for each part of this program, ‘Does this make sense for where we are and should we make adjustments?’ That could reflect an increase in qualifications,” Van Dyke says.

Belz said his company has increased the qualification period for their incentive trips. “We used to do 12 months, but because of the cost factor, we stretched it to 18 months. In the last six months we catch in that off year, we might do a [merchandise incentive],” he said. “It was perceived at first that it was a little cheap, but then they got past that. And we PR’ed it more. We started sending gifts to the spouses, and we did more promo, which kept it alive for the 18-month period. We have built it up.”

Owens said that her groups are now smaller and more elite. Instead of having larger back-to-back incentives, her clients are taking an edited selection of their sales force to more exotic and upscale locations, “something to get people really excited about,” she said.
No matter which way you look at it, incentives are back in the ring and practicing in the on- and off-seasons to be better than ever. Now, that’s motivating!