Feature Article - September/October 2018

State of the Incentive, Reward & Recognition Industry

Where We Are, Where We're Headed

By Brian Summerfield

Obstacles Ahead

Dolan's observation about the corporate incentives space attracting outside attention is a double-edged sword, however. There's validation there, certainly, but it could also portend disruption, perhaps in the form of new competition. Imagine, for instance, if Amazon decided to become a direct provider of non-cash rewards. It's not more far-fetched than the company's foray into, say, health care.

"It's easy to rest on your laurels," Dolan said. "Don't! Be aware other giants may awaken to our space. Look out for product and trend shifts. Look at how gift cards have proliferated our industry. Be aware of diversity and its role not only domestically but internationally. And keep in mind, due to the web, the buyer's journey and the buying process today is way different. Vendors will have to continually conform to how buyers wish to buy and get innovative in that process."

Related to that is the disruption in retail generally brought about by digital advertising and e-commerce, Slagle said.

"At a Special Markets Dialogues meeting this past October, which I moderated, the attendees discussed several issues related to the demise of notable retail chains, the closing of nearly 9,000 retail stores in 2017 alone, the abandonment of entire shopping centers around the country and the consolidation among several of those retail chains," he explained.

"We discussed the prediction by some business and consumer research firms that by 2022, three companies—Amazon, Alibaba and eBay—will control 40 percent of the planet's e-commerce.

"The relationship of retail brands sold in the brick-and-mortar stores, as well as online, to the incentive industry is apparent. The health of one element of the marketplace affects the other elements. Maybe scarier still is the prediction that within 15 years, e-commerce will overtake traditional retail sales in developed nations. So, we need to be aware that our industry does not operate in a vacuum and that we rely on the health of the retail parent companies for nearly all the branded merchandise sold in the incentive marketplace."

Another big potential challenge—what Van Dyke called a "countercurrent"—is the legislative and regulatory landscape, both domestic and international. From the European Union's GDRP data regulations to the U.S. Occupational Safety and Health Administration's position on safety incentives programs, it can be a lot to keep up with.

"It's not just that they exist, but organizations not knowing what changes might be coming down the pike," she said. "That vacuum of knowledge creates cautiousness around what to invest in."

Van Dyke mentioned the U.S. Department of Labor's so-called "fiduciary rule" as one particular source of anxiety within the industry. It specifies who can legally be considered as financial agents of organizations—and therefore has an impact on how those organizations could reward certain people doing work on their behalf. The courts actually held this rule up for legal review, but in the end, organizations had to understand and comply with it.

"I think we all need to be alert to government regulations that impact our industry," Slagle said. "Within the past two years we've seen challenges to the incentive travel industry by what was termed the 'fiduciary rule,' we still see OSHA positioning incentive safety programs as somehow being counterproductive, and we just last year saw an attempt in Congress to negate a tax exclusion that had been in place for 30 years that would have been detrimental to employee achievement awards. Fortunately, the industry managed to influence our elected officials to leave that tax preference in place.

"We're waiting now for the U.S. Supreme Court to rule this month on whether companies selling and delivering products across state lines by the Internet or otherwise will need to collect and report sales and use taxes from the recipients, their distributors or other third parties," he continued. "Think about the number of products that are drop-shipped to end users from companies outside the recipients' states. Who will be required to report and collect those taxes, how will it be done, and what will the cost be?"

There's one major challenge remaining that's as old as the industry itself: making the business case for non-cash rewards, as well as skilled, experienced professionals who can help organizations set up and administer incentives programs.

"Research over the years has shown that many businesses are more successful if they rely on experienced and knowledgeable providers to design and implement their incentives, awards and recognition programs," Slagle said. "While some still do purchase gift cards and merchandise at retail, we'd like to think we can overcome those habits by demonstrating better ways to employ those dollars.

"There's a wealth of information available that demonstrates how tangible, non-cash rewards contribute to higher employee satisfaction and productivity and to increased customer loyalty. We all need to keep at the task of educating the decision-makers at businesses around the world about the value of what we do. We've come a long way since 1996, but we have more to do."