Feature Article - January/February 2013

Smoother Sailing Ahead

Adapting Incentives to the New Economy

By Rick Dandes

The Incentive Research Foundation (IRF) has identified the new normal as a "sensitivity to extravagance, a local focus and shortened planning cycles," explained Melissa Van Dyke, president of the St. Louis-based foundation. "In our Pulse Study work over the last five years," Van Dyke said, "we have continued to see great spikes and valleys in a number of planner's perceptions—sharp changes that occurred in just a few months' time. For example, between fall 2011 and spring 2012, the number of planners who said the economy was having a negative impact on their ability to plan programs went from 62 to 22 percent. This was the single largest drop we had seen to date. We expected to see volatility like this at the height of the recession, but it has also been consistent since the start of the recovery."

Rodger Stotz, who, as chief researcher for the IRF, crunches numbers and provides data for the industry, said he's been tracking data since September 2008 and has seen the "new normal" through several lenses:

  • Incentive travel: The economic conditions have raised organizations' sensitivity to "the appearance" of extravagance in regard to incentive travel and travel in general, Stotz said. This "sensitivity" reached a high in October 2008, has fluctuated since and now is showing that this concern is reported by 49 percent (October 2012). "So this continues to be an issue of the new normal, but has declined from its higher level in the early stages of the economic downturn," he said. There is a continuing trend to change from international travel to domestic destinations for incentive travel programs. The costs, time commitment, desire to stay closer to home, and concerns about international travel by participants are potential factors influencing this trend.
  • Shrinking timelines for program decisions and operation is another issue, according to the IRF. The sensitivity to budgets and expense control has caused shorter lead times, Stotz said. "The incentive travel suppliers are experiencing more last-minute requests for programs as year-end budgets are finally released and must be spent within a short time period."
  • Non-cash/merchandise incentives: In the new normal, the use of gift cards (prepaid cards) is growing, and gift cards are now the most frequently used award type.

"Prepaid cards are now the most frequently used reward in corporate incentive programs," Stotz said, and are being used as incentives across the spectrum, from spot rewards to holiday bonuses and for merchandise, dining, travel and entertainment. Individual incentive awards have grown as an option in incentive programs as a result of the 2008 and 2009 sensitivity to group incentive programs. This inclusion of individual travel has continued and appears to be an addition to merchandise award offerings. Also, new opportunities have emerged, such as employee wellness programs. The national emphasis on the costs of health care and the need for more prevention versus predominantly focusing on treatment has led many companies to develop employee wellness programs. These programs support the use of incentives, with non-cash awards driving employee participation.

The major trend for the new normal is "budgetary pessimism," said both Van Dyke and Stotz. This is seen in the shorter timelines and planning cycles, decisions delayed until the financials are solid for the year and the budget is confirmed by the revenue and cost numbers.