Diversity Training: In B2E incentive programs, the right reward mix can reduce budget pressure

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When it comes to delivering hard benefits in a B2E loyalty program, you might be tempted to think that cash is king—after all, what employee couldn’t use a little something extra in the pay envelope come Christmas time? But just as cash rewards offer no perceived value in the consumer space—a dollar is worth a dollar, no matter how it’s earned—so too can cash incentives to reward top performers quickly become commoditized. Cash rewards can also become viewed as entitlements, with a negative effect on employee loyalty if this year’s reward is lower than last year’s.
That’s why more than 75 percent of Fortune 500 companies spend billions of dollars annually to supplement their employee compensation plans with non-cash incentive programs. Whether points-based, constructed with performance metrics and formal tiers or tied to individual, team or corporate-wide goals, non-cash incentive programs based around gift cards, travel, merchandise, entry-level and experiential rewards often look suspiciously like generic consumer reward programs—and are often managed and fulfilled by the same suppliers. The danger, of course, is that relying on the usual suspects in B2E reward program design and fulfillment can result in a lot of cookie-cutter programs that do little to engender employee loyalty.

For example: The Incentive Federation’s “2005 Survey of Motivation and Incentive Applications” polled businesses across every sector to look at the use non-cash incentives to motivate employees. The survey revealed that 83 percent of companies surveyed use merchandise and travel rewards in their sales incentive programs and 72 percent use them to reward non-sales employees. 80 percent of respondents said that travel and merchandise rewards “are remembered longer by program participants than cash awards.”
That’s true as far as it goes. But if you put up an employee reward web site, set some basic earning rules in place, and announce your new B2E program to your employees, is your work done? COLLOQUY’s work in the consumer loyalty space revealed that of the estimated 40 percent of new loyalty program launches that failed since 1990, the number-one reason for failure was lack of customer segmentation—every customer got the same offer, regardless of their value, behavior or stated preferences. It’s not a stretch to suspect that absent basic employee segmentation, B2E loyalty programs might suffer the same fate.
“In fulfilling our ‘Turning Moments Into Memories for Our Guests’ mission and promise back to our employees,” says Matt Smith, Executive Director of Learning and Development for Fairmont Hotels, “the best memory for some employees might be not a trip for themselves, but instead bringing distant family members to their home city. Or it might be a basement home theater where they can spend hours of memories with friends and family.”
In other words, your B2E loyalty budget can achieve maximum efficiency only when you target non-cash incentive reward offers to the right employee groups. The good news is that basic employee segmentation doesn’t require you to get to the same granular level of individual behavior that the most sophisticated consumer programs enjoy. Writing in Talent Management magazine, James Feldman, founder of employee incentives company James Feldman Associates, Inc., and Diane L. Landsman identify three basic tiers of employees to which you can target specific incentives:
Entry-level staff: Consisting of hourly, clerical and other support staff, this group is less motivated by high-end travel rewards because of the out-of-pocket costs associated with redemption. Cash awards work for this group, but “gift certificates or vouchers to restaurants, movie theaters and other leisure activities … allow the winners to indulge themselves and their families with entertainment they might have denied themselves because of budget constraints.”
The broad middle: Consisting of middle management and mid-level sales staff, these employees constitute the sweet spot for individual travel and higher-end merchandise rewards. This tier will also be your largest segment, so additional segmentation by “education, interests and other evaluation criteria” can help.
Executives: Like platinum-level frequent flyers, this group is less motivated by economic incentive than they are by experiences and bragging rights. This group of employees is made up of executive-level managers, owners and distributors. “A round of golf in Augusta, Georgia, dinner at Palace of Versailles or VIP seating at the Academy Awards will grab the attention of these employees,” say Feldman and Landsman. Good luck with that.
Still, given the current economic climate, even the best-designed B2E reward program will be under pressure to trim costs. In a September 2008 survey of incentive travel providers, suppliers and buyers by the Incentive Research Foundation, 81 percent of respondents said that the recession is having a negative impact on their ability to plan incentive travel programs, and 61 percent reported incentive program budget cuts. 45 percent said their companies were sensitive to “perceptions of program extravagance” due to the downturn.
The recession appears to have less of an impact on merchandise and other non-cash rewards, with 48 percent indicating a reduction in such programs, mainly in the reduction of merchandise reward value and a bigger shift to gift card rewards. Such downward economic pressure only increases the need to target reward incentives where they will do the most good—if you’re offering Applebee’s gift cards to the CFO and a trip to the Super Bowl to the receptionist, then something might be out of whack.

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