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Premium Incentive Products Magazine - Products and Ideas That Inspire Performance

Smoother Sailing Ahead

Adapting Incentives to the New Economy

The volatile nature of the current recovering economy has left many business executives and HR professionals uncertain about what is the "new normal" in employee recognition.

But one thing seems fairly clear, according to Mike Ryan, senior vice president of marketing and strategy for Madison Performance Group in New York. "People have settled into the idea that they need to do more with less. For employees, that means working longer hours and, in many cases, for less pay or stagnant wages. But for HR professionals focused on the whole emotional and intellectual relationship that their employees have with the brand, it means they not only need to be more efficient with their recognition budgets, but also more effective. And that's where I see the effect of the downturn on incentives."

Executives in the C-suite are looking for ways to keep their employees focused, motivated and engaged, but realize they don't have the economic tool kit that they used to. They don't have a lot of money for raises and bonuses. As a result, they've become more interested in what non-cash awards can do for them.

This, in a way, poses a challenge for HR executives, Ryan said. "They are being green-lighted to do more with recognition, to be creative, and to not only be more efficient and economical and get the most bang for it, but also to align it with where the organization needs to go in terms of meeting some of its contemporary issues."

Ira Ozer, founder and president of Motivation Partners in Chappaqua, N.Y., agreed with Ryan that, "In the new normal, companies have to make do with fewer resources, which means a continuing push to improve people's productivity. Since almost all employee engagement research studies conclude that approximately 60 percent of employees are disengaged, and the main reasons are not for lack of adequate compensation, but rather a lack of respect, recognition and collaboration, there will be a continuing need for incentive and recognition programs."

This is especially true, Ozer said, for programs that are designed to directly improve productivity, such as sales, service and innovation incentive programs and for those that can prove a measurable return on investment.

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.

Getting Stronger

In many ways, suggested Michelle M. Smith, vice president of business development for OC Tanner in Salt Lake City, "the new normal feels like the silver lining found behind the storm clouds. I believe we've emerged from the Great Recession a stronger and much improved incentive industry, and our corporate clients have also evolved in their thinking about the value of all the stakeholders that touch their businesses."

Smith contends that the hardships of the past few years have united the industry in an unprecedented way that was unlikely to happen had it not had to address "the AIG effect" in incentive travel or combat the GSA meeting and incentive program scandal that was the furthest thing from what anyone on the meetings or rewards side of the business would have ever created for a client.

"We realized," she said, "that we were a stronger industry working together, and we all tightened up our operations and focused on our unique value propositions to deliver more efficient and better solutions for customers."

That's similar to an observation made by Brad Callahan, vice president of business solutions for Marketing Innovators in Rosemont, Ill. The lackluster economy, he said, has forced organizations to think creatively about leveraging social, mobile and cloud technologies to connect with and deliver low-cost forms of rewards and recognition to their employees, partners and customers.

The social sphere, collaborative-workspace technologies and the connective-application of game, reputation and social mechanics, he said, are transforming the way incentive and reward programs will function in the future, in terms of the velocity of feedback, communication, "right-time" missions, advancement, incentives, fun, play and surprise.

"And so," Callahan said, "we see many organizations blending incentive, social and game elements into their programs—disrupting traditional incentive program designs and creating new ones."

The downsizing and challenges top executives faced in their businesses also caused many of them to better appreciate the employees, customers and partners who proved so invaluable in getting their companies through some very difficult circumstances, Smith added.

"Many of our clients actually increased their programs and budgets over the last few years to ensure that appreciation was appropriately expressed," Smith said. Leaders have become much more creative and agile in this new economy and are focusing on attracting, retaining and developing their most valuable talent and flawlessly executing their corporate strategies. Executives have come to realize that many of those business strategies are really people strategies at their core, and that incentives and recognition play a critical role in bringing their goals to fruition, so the new normal is looking very promising for everyone.

The Downturn's Effect on incentives

People seek safety in times of economic distress. And that's what we have seen with business professionals responsible for incentive programs.

At the onset of the downturn, noted Callahan, "we witnessed the contraction of incentive programs in terms of number of participants and a reduction in budgets. This was especially true for employee programs, as their organizations downsized the workforce and cut budgets in response to the weak economy. Moreover, we also saw many companies shelve their plans to roll out new programs or refine existing ones. Keeping things status quo became the new norm and very safe for program/business owners in fear of their jobs. All of this led the industry to create more of an imperative to conduct research, which can prove the value of all types of incentive programs."

In the new normal, the use of gift cards (prepaid cards) is growing, and gift cards are
now the most frequently used award type.

Certainly the most expected and discussed impact was the budgetary pessimism that took hold and still has proven difficult to shake for some companies, agreed Van Dyke, of the IRF. "However, this was balanced by a continued rise in the use of card products, wellness programs, and to some extent, recognition efforts. As the opportunity to shop and purchase personal items became relatively more difficult, employees once again found trophy value in things such as housewares and electronics."

During the worst days of the recession, organizations also became more aware of the vulnerability they have with top performers. "Employee engagement used to be synonymous with people's commitment or willingness to stay," Ryan said. "It was definitely a leading indicator when it came to your attrition levels. But more and more organizations are seeing that their top performers are open to the idea of leaving. Organizations know that not only do top performers contribute the most, in terms of productivity, but when they leave there is a lot that goes out the door with them that is important in today's economy. We live in a knowledge-based economy. Top performers have very high business acumens and intellectual capacities, an emotional intelligence to understand what their client's needs are, both stated and implied. So I think organizations seem to be very concerned about losing their top performers and the emphasis to retain them and also to build environments where they can attract them from competitors is really where the issue of recognition is right now."

Changes Ahead

Some employers have been slow to see their employees as the valuable assets they are, Smith said. For years, leaders were trained to gain competitive advantages and operational efficiencies through back-office systems, such as improving technology, supply chain management, six sigma or outsourcing initiatives, etc.

After that, leaders were encouraged to turn their attention to customer relationship management to increase market share. These were the items listed in the "asset" column of their balance sheets and executives were expected to optimize assets with aggressive investment and management focus. Employees appeared in the "expense" column, and the prevailing thinking was that the best approach was to control and minimize expenses.

Properly designed, communicated and administered programs can improve performance by 20 percent to 40 percent or more, according to industry research.

"I've found that innovative and progressive leaders now approach that philosophy very differently and view their employees as human capital assets," Smith said. After all, even the best equipment, processes and systems in the world need people to operate or perform them, and that realization has finally taken hold in board rooms across North America. It sounds obvious now that people are at the heart of every aspect of running a business—and are, therefore, in the best position to positively influence outcomes—but that perspective has only recently begun to make its way into leadership training or a broad base of business publications.

Business leaders are now more open to new ways of improving performance, not just relying on the same old methods that have led to success in the past, added Ozer. "One major example is the use of social media and collaborative engagement software and integrating formalized recognition processes into company culture. Another is the understanding that health and wellness programs can not only reduce health premium costs lost work time, but also improve productivity and corporate culture."

How Will Incentives Fare in the new economy?

A little recognition, guidance and feedback from leaders will go a long way in keeping employees motivated and on the job, Smith noted. Like several other experts have observed, escalating workplace demands in our still struggling economy have created environments where employees don't feel they are valued appropriately by superiors, and employers are overlooking simple solutions to improve employee morale and loyalty through the use of recognition and incentive programs.

"CEOs tell me that managing talent is at the top of their agenda, and research bears this out," Smith said. "As we move out of the downturn, CEOs need to put the focus firmly on their people, as competition for talent is intensifying, and already there are increasing difficulties finding staff with the right skills. CEOs often speak of the importance of talent, but I don't see enough evidence of action being taken. Incentive professionals need to help CEOs see what can and should be done."

There have been some casualties of the recession, including trust in corporate leadership, employee morale and customer loyalty. Companies need to seriously consider how to regain employee productivity, ignite performance and engage customers. "I've found that company culture is often an overlooked place to jump-start business improvements and should be treated as a vital component of everyone's overall business strategy," Smith said.

Both employees and customers often cite a company's culture as having a substantial impact on the success of an organization, and creating that culture is the purview of senior leadership and can't be relegated out of their realm of responsibility.

"I believe we are entering the 'golden age' of incentives." Ozer said firmly. "And if our industry continues to work together to develop and promote research, best practices and effective case studies that prove ROI, then incentive programs will be considered as important as advertising to improve business results."

Already, recognition program budgets have started to return as the economy has stabilized, according to data collected by the IRF. In October 2012, surveys showed 49 percent of respondents anticipating increases in merchandise award budgets. The more successful award providers have become more agile and adaptable. For example, one provider of merchandise has added a prepaid card to its offering. This prepaid card was a response to last-minute opportunities that could not be fulfilled with merchandise due to lack of inventories and short lead times. Major business consultancies and thought leaders, such as McKinsey, TowersWatson, Hay Group and Gallup, have come out (either weakly or strongly) as supporters of non-cash reward and recognition, especially as it pertains to engagement.

Meanwhile, added Callahan, "Prior to the November election, we started to see a change in the organizational buying process. Early on it took the form of information gathering relative to what low-cost forms of incentive and recognition options are available and how can new mobile, social, global technologies best be leveraged.

For 2013, expect to see more and more client RFP requirements to include social, mobile, virtual and game dynamics for their incentive programs as they move from a nascent curiosity to an emerging trend. The change has more to do with the design, structure and mechanics of programs, but will also focus on deleveraging cash components in favor of points, badges, tokens and social status, and reputational awards.

"In a business setting," Callahan said, "that means designing incentive solutions using social, entertainment and gaming principles in everything from back-office tasks and training to sales management and career counseling." These new types of programs will help get stakeholders passionately and deliberately involved in what their organization wants them to do. Interaction, collaboration, awareness and learning will all be related effects, whereby individuals will be encouraged to make new connections, share information, learn and have fun.

Incentive programs will fare very well in the future, Callahan continued. "They are just going to be transformed into something totally different, along with the participant experience."

By taking a more modern approach, these programs will drive a renewed focus by businesses to place the people at the center of their strategy; to accelerate and improve the outcomes of key initiatives. Companies will look to embed these attributes into day-to-day business activities—interacting with the next generation in their native language, and tapping into an enthusiastic older generation that has embraced some of these very same technologies. And, as the foundation to the post-digital era is being built, organizations will make investments in this direction to take advantage of this transformation.

Things to keep in mind

The effectiveness of recognition and incentive programs as cost-efficient vehicles for improving employee engagement, aligning the workforce behind corporate priorities, and increasing productivity is well-documented. While these programs are a very positive experience for employees, it's the employer who gains the most from them in the increased revenues and cost-savings they can generate. "I can't imagine why an employer wouldn't want to take advantage of these benefits," said Smith, "especially when everyone is seeking every possible advantage in the marketplace."

So don't wait for budgets to unfreeze, Callahan warned. "Apply a blend of low-cost strategies and tools to create more immersive types of experiences: Set the tone or context of the program in a narrative with progression paths so that the desired behaviors are in the forms of missions or quests. When a novice performer is rewarded for more basic tasks, a more advanced performer is rewarded for challenges of greater difficulty. Leverage hyper-feedback by using rapid indications of success through virtual (badges, status, reputation) in combination with monetary rewards, and leverage social networks to create competition, expand learning and provide support."

But don't forget: Just because people have jobs, it doesn't mean they're always giving their best effort to that work or that they aren't planning to jump ship at the first possible opportunity. What should trouble employers most as the economy recovers, is that according to several studies, worker unrest is 2.7 times higher for top performers—the very people employers are likely relying on the most to help them accelerate their recovery. "I think that companies who are being short-sighted about engaging their workforce will likely continue to find themselves disappointed with what they get from their workers," Smith noted, adding that they may even find a good percentage of their best talent abandoning ship in the near future.

There are many types of incentive and recognition programs across the enterprise, including those that motivate and engage employees, channel partners such as dealers and distributors and customers. It is key to do a proper assessment of each company's unique business situation and market to determine the best program and structure. Properly designed, communicated and administered programs can improve performance by 20 percent to 40 percent or more, according to industry research. Companies that use incentives and recognition are more successful, more profitable and have higher employee retention and customer satisfaction than ones that do not and are more innovative and poised for long-term growth.

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