Engaged WorkforcePerformance Management & Rewards

The Top 11 Incentive Trends for 2011

A special report from the Incentive Research Foundation.
 
 
The incentive industry has seen extraordinary changes since the 1980s when a small number of major incentive companies dominated the field, the emphasis was on sales incentives, sales were made solely on the basis of relationships, and incentive companies had gross margins approaching 50 percent. Today, hundreds of smaller players offer a wide variety of incentive solutions. The focus is on much more than just the sales programs due to the number of studies that show the power of incentives to drive employee engagement and customer loyalty. The concept of corporate social responsibility has emerged as a significant element for many programs. Competition and the economy have narrowed the once generous margins for incentive companies.
 

Recent research by the Incentive Research Foundation (IRF) and others, pulse studies and Delphi panels offer some pragmatic insights about where the reward for performance industry has been and where it is heading. As the IRF looked toward 2011 and beyond, it analyzed existing research, scanned incentive industry and business publications, and sought input from industry leaders.
 
 
1. Cautious Optimism Emerges
At the 2010 IRF roundtables, approximately four in 10 participants said the economy has had a slightly positive impact on their ability to plan and implement non-cash incentive programs. Although this figure is considerably better than this time last year, optimism is rightfully tempered by the fragile and emerging state of the U.S economy. As a result, all businesses, including incentive providers, must be able to plan for a range of economic possibilities in the near future. As we have all witnessed, even small bits of relatively negative information can instill fear and freeze investment plans.
 

2. Adjusting to a New Normal
Fully 60 percent of IRF roundtable participants said business seems to be settling into a new lower level of activity. According to McKinsey Quarterly’s report The New Normal, there is significantly less financial leverage in the system; there’s an expanded role for government; there are new levels of transparency and disclosure for investment vehicles; and there is less U.S. consumption (meaning a reduced role as the engine for global growth). The good news is that organizations are starting to adapt rather than reduce or eliminate programs. In the roundtable discussions, participants spoke of developing new ways to justify programs, reevaluating business models, and focusing only on business prospects with well-qualified potential. This includes molding travel programs to fit into budgetary constraints, which often included a reduction in qualifiers, fewer management attendees, fewer room gifts and less than five-star properties.
 

3. Going Global
Our industry can no longer think globally only in terms of the places we send people and the products we carry. We must now think globally in terms of complete business opportunities. In Globalinc: An Atlas of The Multinational Corporation, Medard Gabel and Henry Bruner suggest that the number of multinationals has grown to 820,000 if affiliates are included. In January 2011, Google searches on “employee engagement” were ten times higher in India than in the U.S., five times higher in Singapore, and four times higher in South Africa. India is now ranked third in searches for “employee recognition” just behind the U.S. and Philippines. And India was just behind the U.S. in searches for “sales incentives.” This shows immense promise for incentives services overseas.
 

4. Increasing Government Involvement
All aspects of the incentive business face greater government influence. Along with the known travel pressures, the 2009 Card Accountability, Responsibility, and Disclosure Act installed new notification and fee requirements on all debit card providers. However, thanks to the work of the Network Branded Prepaid Card Association (NBPCA), the ECO-Gift Card Act was passed, extending the implementation deadline for the legislation to January 31, 2011, ensuring that over a hundred million cards did not have to be destroyed. In addition, Congressmen have already tried twice to add last minute amendments to bills that prohibit the use of promotional products. On the positive side, the government has added a focus on wellness incentives in their recent healthcare legislation, which includes a provision to increase the value of incentives supporting these programs from 20 to 30 percent.
 

5. Redefining Extravagance vs. Necessity
As a society, we are now more sensitive to and wary of extravagance in all forms. In the IRF roundtables, 33 percent of participants saw a switch from international to domestic travel as well as a reduction in the length of trips. Pew Research has also found that Americans are redefining “necessity.” Between 2006 and 2009, the firm reports a 10 to 20 percent decrease in the number of Americans who said cable TV, clothes driers, and microwaves are necessities. It is therefore important to reconsider all elements of an incentive program through a necessity lens.
 

6. Preferring Experience Over Product
People are beginning to clamor more for experiences than products. Just more than 40 percent of roundtable participants said they expect that individual travel will increase as a result of this change in personal preference. Other indicators such as the growth in affordable massage services, the rise in vocation vacationsand the outstanding number of Groupon.com deals that are centered on services begin to show how consumer preferences are headed toward experiences. Experience has always been a strong part of incentive travel, but now must also become more present in merchandise incentives.
 

7. Non-cash recognition on the Rise
Contrary to 1980 where variable pay was an “alternative” reward, the concept is emerging as an integral part of compensation plans. According to Hay Group, just fewer than 40 percent of companies worldwide have increased or plan to increase the proportion of variable pay in their employees pay packets. If management is already using variable pay, non-cash incentive plans for non-managers are harder to justify. At the same time, there is a strong interest in the use of non-financial motivators. According to McKinsey, three non-cash motivators—praise from immediate managers; attention from leaders; and a chance to direct projects—are at least as effective as the three most highly rated monetary methods. The economic slump offers business leaders a chance to more effectively reward talented employees by emphasizing non-financial motivators as well as cash awards. Both forces support Accenture’s 2010 report of a 28 percent increase in recognition programs globally.
 

8. Changing Social Influencers
A number of indicators point toward a reprioritization of what’s important to many individuals. This trend impacts what we buy, where we invest, and where we choose to work. It is estimated that there are currently 43 million lifestyles of health and sustainability (LOHAS) consumers dedicated to personal and planetary health. They make environmentally friendly purchases, support advocacy programs and see themselves as active stewards of the environment. Another 34 million people are naturalites, not politically committed to the environmental movement, but still focused on buying natural/organic consumer goods. Likewise, one of every nine dollars in managed funds in the U.S. today is invested in a socially responsible investment fund. In its Global Workforce Study, Towers Watson found that corporate social responsibility (CSR) is the third most important driver of employee engagement overall. As such, incorporating elements of health and sustainability into programs moving forward will be crucial.
 

9. Communication = Social Media
In case you’re counting, at the end of 2009 there were 1.8 billion people on the Internet, 90 trillion e-mails sent, 400 million people on Facebook, and 86 percent of companies used social media (such as LinkedIn) for recruiting. This has led to a world where consumers no longer trust what companies say about themselves.
 

Instead, they care more about what others say. The penetration of social media has also limited attention spans, quite literally, to 148 characters. Yet few businesses have been able to effectively grasp the full impact of social media. One exception is Best Buy’s “Twelpforce,” which leverages hundreds of employees to provide customer support via Twitter. Cost and service pressures will see more firms developing social media engagement strategies that encompass customers, prospects, suppliers, and partners. Integrating technologies into one cohesive strategy will be key for successful incentive programs in the future.
 

10. It’s a Virtual World
There has been astounding growth in all things virtual. Today, we have virtual money, virtual employees, virtual meetings, etc. CNBC reported that the market for virtual products would amount to $1.6 billion in 2010. According to Bernstein Research, over the next 10 to 15 years, virtual meetings could replace up to 70 percent of internal travel and 10 percent of external travel. This could lead to an aggregate reduction of 21 percent in corporate travel spending. Accommodating virtual products and solutions into a incentive plan will be an important part of programs moving forward.
 

11. Games Have A New Meaning
The growth of computer games using token economies will continue in the retail markets and will be explored for application to employee and channel motivation programs. Multiple organizations have already added computer games to their incentive program promotion, communications and/or training. More and more games are using token economies (“points”) as an award for improved performance and it will only be a short time before gaming and token economies will be mainstream in employee and channel reward for performance programs.
 
 

Tags: Engaged Workforce, Performance Management & Rewards

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