Incentives: Cost or Investment?
By Pete Mitchell & Barb Hendrickson
Editor's Note: We asked incentive industry leaders, Barb Hendrickson and Pete Mitchell, to discuss a critical topic in the incentive industry. They chose the debate over whether incentives represent a cost or an investment. What do you think?
Write to email@example.com to weigh in with your thoughts on this issue, or others raised on these pages.
Pete Mitchell is a 20-year veteran of the incentive and promotional products markets, and is currently Director of B-to-B Sales for Samsonite Corporation. He has served as Vice President, Corporate Markets for both Swiss Army Brands and Tumi. He is Vice President of the Incentive Manufacturers & Representatives Alliance and is a frequent presenter at PPAI (Promotional Products Association) and IMA seminars.
"Beware of little expenses. A small leak will sink a great ship."
I'm wondering if old Ben's ghost was in the boardrooms of Corporate America after the Great Recession hit, because companies have been plugging those "leaks" for the past two years. Every little cost that could be eliminated was eliminated. And, rewarding and recognizing employees and customers was part of it.
First, it was just, "We'll suspend the program for a while—just until things turn around." And when things didn't turn around right away, they said, "Well, perhaps we don't need to reinstate it right away." That morphed into, "Perhaps we will reinstate it at a lower level," or, the Nightmare Scenario, "Maybe we don't need to reinstate it at all."
It's insidious, really. A legitimate need to cut expenses results in a change in the way companies view their key achievers. And, the challenge will continue, as budgets are continually reviewed and revised to squeeze out any "fat" that would affect the bottom line. What happens to expenses once they're cut? Are they reinstated? Ever?
Everyone believes in the need for reward and recognition—as humans, we crave it. And, even the most draconian budget includes something for acknowledging excellence. But it's the level of the expense that presents the biggest challenge. If we go from 100 percent to 50 percent, what's the probability that we'll ever return to that old figure?
We're all doing it. We're traveling a little less, spending a little less on hotels or dinners out with clients. And "a little less" becomes "even more less" as time goes on. Do I expect to spend more this year on travel? No. It's easy to see how a cut here and a snip there ends up reducing the overall spend of a given client. Add them together, and you get a challenging environment.
As companies realize that they can survive—even thrive—with lowered levels of spend on employee or customer recognition, they will be loath to spend more. Our market has struggled to create metrics that speak to the "investment" characteristics of incentive and reward programs. It's a "soft" cost that compares poorly with other, more measurable spending options.
For those who do value rewards, it's a race to the bottom to spend less. The $100 item becomes the $90 item, and many brands get forced out of the discussion. Non-branded products have less trophy value and make less of an impact on the participant. And the whole thing goes down the drain.
There are options, of course, and ways for us to ensure we get proper consideration. First, brands connote trust and value. We must make sure our clients are aware of the value of branded products as rewards and incentives.
Second, everyone's keeping score about whether their company is treating them well. When the job market improves (and it will improve, despite the naysayers), employees will leave those companies that don't value their contributions. The brain drain (already considerable with the loss of the baby boomers and others being outsourced) will make a considerable impact on the enterprise. Recognition is one tool to mitigate that effect.
Finally, we have to be loud and proud, supporting the notion that our clients must "walk the talk" with regard to people and how they truly are the most valuable company asset. Everyone says it, but an ongoing program of reward and recognition is the best way to prove that the company sees its employees (or customers, another sometimes-forgotten stakeholder) as a vital component for future success.
The hill is steep. The urge to cut "non-essential" expenditures is strong, and the willingness to reinstate them will be weak. We face an uphill climb to make sure companies understand what happens when your key constituencies aren't being cared for. We can, and must, plug the leak. The alternative is poor for those of us who can't swim.