Feature Article - March/April 2010

The Doors of Incentive Perception

Controlling Your Incentive Programs and Public Perception

By Daniel P. Smith

AIG gave incentives a bad name. That's the word on the street.

As news of AIG employees' posh $440,000 retreat to a California resort spread about media outlets last October, detonating public rage about corporate excess in light of the federal government's bailout, millions wondered how a stumbling business, one that owed its existence to the U.S. government's CPR, could reward any employees given its fumbling ways.

The ire directed at AIG, particularly as the economy tumbled downward, was as palpable as it was loud. One Wall Street Journal reporter reminded readers that AIG" is a company mostly owned by taxpayers, a punching bag for class warriors in Congress, a symbol of foolish excess in pursuit of subprime profits, [and] a business that most figured would be worth zero once Washington got done with it."

Much of AIG's "punching bag" status came from the incentives it doled out to executives, including the aforementioned California getaway as well as an extensive and secretive compensation plan that padded executives' pockets with millions at the same time the insurance giant spiraled toward bankruptcy. The company's lavish spending did much to discredit its intentions and thrust the incentive industry into the national spotlight, drawing the fury of an increasingly cynical, critical public.

Suddenly, AIG, justified or not, had brought incentives to the nation's forefront, gaining public indignation and spoiling the positive, motivational spirit of incentives as a sound business practice. Public sentiment sent many businesses, often against their better judgment, scurrying backwards, leading many to minimize incentive programs or altogether halt the practice.

"No organization wanted the scrutiny and negative press AIG received," Incentive Marketing Association (IMA) Executive Director Karen Renk said. "Many companies cancelled or scaled back their incentive programs not because they felt incentives didn't work, but because they did not want to get caught in the media's eye and the public's disdain."

In October 2008, on the heels of the AIG fiasco, 75 percent of respondents (a 30 percent jump from just one month prior) to The Incentive Research Foundation's (IRF) Pulse Survey indicated that they were "sensitive to perceptions of program extravagance to the extent that it would impact the type of company program awards and inclusions." That three out of four business leaders stood on edge underscored a worrisome point: Incentives, an often-prized business practice, risked being washed away.

By March 2009, the number of those "sensitive to perceptions of program extravagance" had dropped to 63 percent, though the intensity of concern among those most sensitive had nearly doubled from 18 percent in October 2008 to 34 percent in March 2009. The future appeared bleak; the industry grew tense and anxious.

"There's no question that AIG had an impact and, frankly, blew the lid on the incentive industry," said Bob Dawson, founder of the Business Group, an incentive products and service provider based in Roseville, Calif. "A new reality emerged."