State of the Incentive, Reward & Recognition Industry
Where We Are, Where We're Headed
When you look at the corporate rewards and recognition industry today, it's easy to be sanguine about the future. There's a spirit of optimism among the provider organizations and trade associations in this space. Spending on non-cash rewards is going up overall, and the majority of U.S. companies currently offer them to their employees and external partners in some form or fashion. And, incentives have received a big boost from technology in the past decade, both in terms of new merchandise offerings and the platforms that administer and track these programs.
Still, it's worth remembering that things looked pretty great across the board to real estate agents and stock traders back in 2005, too. Almost everyone in those fields seemed to think that everything was peachy keen, and the good times would only get better. Of course, in just a few years they discovered that wasn't the case: A confluence of dangerous yet largely unforeseen developments sent these industries reeling and caused the biggest economic downturn since the Great Depression.
Now, this isn't to rain on anyone's parade, nor is it to insinuate that there's trouble in store for whoever's reading this. The incentives, rewards and recognition industry has grown a great deal and, by all accounts, will likely continue to do so for years to come. The point here is to emphasize that continued success within this space rests on the ability to realistically appraise what's going on right now and prepare for any potential challenges ahead.
To figure out the big picture, we spoke with some of the leading voices in rewards and recognition. Here's what they had to say.
It's not really hyperbole to say that the incentives industry is as good as it's ever been. Start with the numbers: Steve Slagle, managing director of the Incentive Federation, cited research from the Promotional Products Association International Sales Volume Survey, which reported a rise in sales in 2017 of more than 9 percent, with the biggest increases coming from the larger firms. Additionally, Melissa Van Dyke, president of the Incentive Research Foundation (IRF), pointed to findings from her own organization showing that more than 90 percent of the people who run rewards and recognition in top-performing businesses report that leadership sees these programs as a competitive advantage.
"In 1996, when the Incentive Federation conducted its first incentive market study, we discovered that only 26 percent of U.S. businesses were using non-cash incentives, and in 2000, the industry was measured as being $27 billion," Slagle said. "In 2016, our research showed that 84 percent of businesses use some form of non-cash incentives, and the expenditures had grown to $90 billion."
For those and other reasons, the people interviewed for this piece consistently reported that the state of the industry is "strong."
"The state of the industry is strong as it has been in the last eight to 10 years with the economy on the upswing—and perhaps in a transformational mode as well due to the decline in baby boomers as employees and AI gaining momentum to replace some of the human aspect of workers, but also relative to the vendors' services provided," said Brant Dolan, current president of the Incentive & Engagement Solution Providers (IESP), a strategic industry group within the Incentive Marketing Association (IMA).
"I'd say the industry is strong, has elements that are stronger than others and is undergoing some transition: transition as in some steady consolidation, strong as in continued growth with gift cards and with few reports of serious issues or loss of business," Slagle said. "Anecdotally, there are some reports of companies having a difficult year, but from what I hear, most seem to be doing well."
"The industry is absolutely strong," Van Dyke said. "There's been more than 200 percent growth in the use of non-cash rewards over the past 20 years. There are a number of drivers behind that, but when you have 86 percent of all U.S. businesses using non-cash rewards in some manner, that tells you that this is no longer a tangential part of doing business in the United States. They're a key part of incentivizing employees, channel partners and salespeople."
The IRF has regularly gauged optimism among practitioners within the incentives space for about a decade now. And although overall optimism dipped a bit in Fall 2016 from the previous year—which Van Dyke attributed to the general sense of uncertainty around the presidential election—it rebounded and rose in the fall of last year. Also, she pointed out that since the IRF started measuring it, there's only been one time when there was a net-negative outlook: in Fall 2009, right in the thick of the Great Recession.
Slagle listed a litany of research that projected growth this year: the IRF's 2018 Trends Report, the Society of Incentive Travel Excellence's 2018 Index, the Promotional Products Association International's 2018 First Quarter Market Outlook Report, and an IMA/IRF study on the gift-card segment of incentives.
"Certainly, the long-term trend of growth in the numbers and percentages of businesses moving toward non-cash incentives and rewards, and the increase in the absolute level of expenditures, has to be a positive," he added. "In 1996, those of us involved in the Federation and in various aspects of the industry were discouraged by the use of cash by businesses to reward sales teams and employees. Gift cards weren't really on the radar with the research back then, and the use of gift certificates typically resulted in a redemption for merchandise rather than the broad range of choices we see today. Rewards points are another form of recognition or incentive that wasn't used much in the 1990s, and now we all see rewards points being redeemed for all types of things, including travel, merchandise, food, entertainment, etc."
"According to the unbiased research I see as provided by corporate practitioners, it is a growth industry," Dolan explained. "It's also evidenced by recent industry buyouts, mergers and more investment capital providers entering the space. These people do their homework and attempt to mitigate their risk. They're seeing something!"
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."
A Bright Future
Despite the potential obstacles outlined above, there are a number of reasons why the incentives industry should continue to thrive. One positive development for this space is a more "scientific" understanding of how non-cash rewards work, achieved through improvements in research and technology.
"I think we could benefit from the industry continuing its move from an 'art' to a 'science,'" said Slagle, who cited recent IRF research as an encouraging example of this. "A study focused on the intangible, non-financial value of awards programs discovered that more companies have begun to tie their employees' satisfaction and productivity to how they are rewarded. While we would hope that all companies spending money in one form or the other, cash or non-cash, would figure out what they're doing, such is not the case. But the smarter companies seem to get it."
"Technology is no stranger to our space," Dolan said. "As it advances, so follows the providers' platforms, services and products. The research, as well, is equipping senior leadership to understand the strategic importance of their human capital, how engagement reflects on shareholder equity, and the employer's branding reputation."
Additionally, the modern employment market—characterized by more frequent turnover, higher levels of dissatisfaction and disengagement among personnel, and less loyalty in general on the part of both employers and employees—presents bright prospects for incentives providers.
"Business has always been about talent acquisition and retention," Dolan said. "Be it an employee base or a sales environment, engagement, respect, recognition and a well-balanced reward plan—meaning the right blend of cash and non-cash in the equation—is what employees long for. As today's savvy prospective employees seek out employers, the trend is to think of oneself as a source for hire. If you treat me right, I'll stay. If not, I'll move on. Not that difficult [to leave] anymore."
"The general inability of modern compensation systems to reward and recognize all of the different types of behaviors that organizations want and need from their employees, channel partners and salespeople bodes very well for the non-cash rewards and recognition space," Van Dyke said. "In the national economy and the world economy, what we do is going to become more and more important."
Another development that could help the industry evolve is the move toward more rigorous professional and quality standards. For a recent example of this, Slagle pointed to the Incentive Federation's just-launched initiative to become the lead organization on developing a set of standards for the rewards and recognition field, not unlike the independent ISO 9000 quality management framework.
"The aim will be to describe the best practices undertaken in the design and implementation of, say, an incentive safety program to ensure the best outcomes for a company's employees and for the company's bottom line," he explained. "We think it's possible to do that if we can get the best minds in our industry to help us develop the standards and then gain approval by the U.S. and international organizations that sanction such standards. If successful, solution providers in our industry can then be certified as using those standards and be known to their clients as a preferred provider to help those companies improve employee satisfaction and productivity as well as customer loyalty. We might also dissuade government intervention via regulations if we have internationally approved standards being used—a lofty and ambitious undertaking, but we've started that task to help any and all industry practitioners succeed."
Bringing together "the best minds in our industry" around efforts like this is the kind of thing that Van Dyke, for one, would like to see a lot more of.
"We have a lot of wonderful people and organizations in our industry," she said. "We're in the door in more than 80 percent of all U.S. businesses. Working together as an industry to make sure those programs are done correctly and effectively … that would be what I would wish for. That's our biggest challenge—and our biggest opportunity."