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Incentives 2011

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Incentives 2011Times are tough for the incentives industry. With traces of the recession still lingering, companies have continued to keep their belts tight and their employees close to home. One U.S. company, however, is doing better than others, and its event planners have decided to use the windfall to book some European trips.

Janine Manino-Smith, a global events planner at Amway Corp., says rates in Europe have fallen so much due to the debt crisis that the company is able to send more team members on European incentive trips than before. Next year, participants are headed to Greece, the country that triggered the financial domino tumble. The year after, it's Austria.

"In the past, Europe would not have been affordable," said Manino-Smith, estimating that the company is spending 10 percent to 15 percent less on the Greece trip than it would have a few years ago. "But negotiations have been going very well, and we've been able to secure concessions that would not have been possible before the crisis."

The ability to take cheaper trips to destinations in turmoil is one of many trends that defined the incentives industry in the first nine months of 2011, according to meeting planners in the U.S. and Europe. Others trends include a continued focus on value and more focus on corporate social responsibility (CSR). Overall, planners say business this year is up slightly from 2010 and that it hasn't recovered as much as they had hoped. Looking forward, about 41 percent expect a slight increase in budgets in 2012, while 38 percent expect budgets to remain unchanged, according to a recent survey from the Incentive Research Foundation.

Amway's situation is exceptional, since the company does better than most others during recessions. Amway is a direct-selling company that recruits independent business owners, or IBOs, who are authorized to market its products. Since more IBOs join when unemployment is high, the company typically thrives during economic downturns.

Still, Manino-Smith's conclusions can be heard across the incentives industry. Colja Dams, CEO of Germany-based Vok Dams Group, says his clients have been asking to take incentive groups to Greece not just because it's more affordable, but because they feel obliged to boost the Greek economy with their spending.

Ireland has been another popular destination, especially for travelers from the U.S., due to the proximity by air and the historical connection between the two nations.

A massive, two-year economic crisis hit the country in 2008, taking property values and prices down with it. Gillian Griffin, sales manager at Adare Manor, a five-star castle resort in Ireland, says U.S. incentive business has improved in the past year.

"Clients want more value for the money, and in terms of value, Ireland has never been a better value," Griffin said. "It used to be an expensive proposition to take an incentive trip to Ireland, but now we're meeting more of the budget criteria."

Crisis Aches Linger
It's true that Europe is on sale. Still, not every company can afford an incentive program overseas. Some can't afford it financially, and others can't afford the publicity. That's one big lesson that meeting planners have learned this year.

The financial angle is easy enough to pin down. With U.S. economic growth creeping along at an annualized 1.3 percent as per second quarter GDP data, and unemployment stubbornly high at 9.1 percent, companies are still very nervous about their long-term earnings prospects. That means less money spent on meetings and events, including incentives. However, because companies know that they still have to motivate their employees and franchise owners, they haven't cut back on the number of programs as much as they've simplified the content. Luxury and fluff made an exit during the financial crisis and haven't been invited back.

"For the 2006 Superbowl, packages were going for more than US$7,000 per person, but those types of numbers are not realistic any more," said Adam Rauch, president of One Line Sports Agency which books sports events for corporate groups.

Packages now average $4,000 to $5,000 per person. Companies are able to shave these costs by spending less on fancy extras. Participants get tickets to the Superbowl and a nice dinner afterward, but they're not getting tickets for the pricey after parties.

"Our clients say guests don't need to be on the 50-yard line; they can be on the 10-yard line and still be up front," Rauch said.

The flip side of this focus on value is that companies are putting more pressure than ever on event planners to offer more bang for the buck. Karen Shackman, founder of New York-based Shackman Associates, says clients often come to her with a long list of spectacular options they have found on the Internet, only to have her explain patiently why these options wouldn't work for them.

"The emphasis continues to be on what's new and different, because everybody wants something that's never been done before," Shackman said.

Working with client budgets, Shackman tries to add flourishes that create a unique experience without breaking the bank.

Interestingly, many experts don't expect spending to ever return to pre-crisis levels, the commitment to CSR and the aversion to frivolous spending has grown too strong.

"The younger generation is perhaps less driven by pure luxury and indulgence," said Elling Hamso, managing partner at the Event ROI Institute in Norway. "The generation seems more interested in meaningful incentive activities than squandering money."

Wanting to avoid being seen as wasteful—the oft cited "AIG effect"—is keeping incentive spending down almost as much as the financial crunch. Even Manino-Smith, whose company can afford to splurge on luxury, says perceptions play a big role in decisions. She points out that her group was recently comparing prices at two hotels, and the rates were very similar despite a big disparity in the comfort level. In the end, Amway chose the humbler option.

"We had to ask ourselves, 'Do we really want to take a group to the ritzy hotel and risk that kind of publicity?'" Manino-Smith said.

Echoing others, Manino-Smith argues that the AIG effect is likely to continue for another couple of years. With the U.S. economy still not out of the woods and Europe still in the grips of a crisis that could escalate, companies are eager to avoid trouble whenever they can.

Being Responsible, For Business and Charity
Luckily, however, the AIG effect is good for the planet. Instead of splurging on luxury trips, companies are more likely to add charitable elements to their incentive packages, in an effort to promote CSR.

Jim Bendt, president of Travel Beyond, which has been taking clients to southern Africa for almost 40 years, says clients have been adding charitable activities to their itineraries in order to minimize the impression that the trip is pure leisure. Charitable activities can either become the focus of the trip, by flying participants directly to a site where they will spend their time building homes, for example, or it can be "feathered" into the itinerary, with just a day spent donating supplies to a local school.

These types of trips are becoming so popular because they accomplish multiple goals: The company can use examples of its charitable work as proof of its positive corporate citizenship, and employees come away feeling the ego boost that comes from doing good.

"People enjoy themselves because they're on an incentive trip, but when they're sitting on the plane on the way home they feel good about themselves too, because they realize they've left a positive imprint at the destination," said Mike Lyons, executive vice president at AMR Meetings & Incentives.

It's not just charitable efforts that fulfill the demand for corporate responsibility. Companies are increasingly finding ways to add learning opportunities to incentive trips. While that's not strictly CSR, it is a way for companies to show that they are not being reckless with their incentive budgets.

In Germany, for example, the Vok Dams Group specializes in blending fun and education. Recently, the company organized a sailing trip for a group of high performers from an international washing machine and dishwasher maker. Not only did time spent on the sea help enhance their understanding of water, but participants were invited to a workshop with a prominent sail maker who explained how his company makes strong sails. On another occasion, employees from a technology company met managers at a small, old school bakery to discuss how they managed to survive competition from larger chains and how new technology forced them to rethink their market.

"You need to prepare participants very well beforehand, and then have them meet people that they can relate to while they're on the trip," said CEO Dams. "Meetings like this allow participants to translate lessons learned by other established companies into their own world."

The trick with making incentive packages more rigorous—either with charitable elements or workshops—is ensuring that the elements offer authentic value and that participants feel they have a choice in creating a meaningful experience.

Being forced to attend a generic workshop about effective management styles given by a talking head will feel like a punishment to participants, not like an incentive. Dams says successful companies often ask incentive participants to vote on the charitable activity they would like to pursue. In some instances, Dams says non-profit organizations can compile a video asking for help (for example, that they need more educational resources for vulnerable students), and employees can then build a strategy on how that help is to be delivered.

"You don't want to surprise them after they get off the bus and say, 'Here's the school you have to build,'" Dams said. "Otherwise, it just feels to them like another company picnic."

Recognizing the Person, Not Just the Performance
Another big trend that continued to take hold in 2011 is a growing understanding by companies that they must recognize the individual they are rewarding, not just his or her performance.

"In the past, it was not always clear to people that incentives were 'thank yous,'" said Michelle M. Smith, CPIM, CRP, vice president for business development at incentives company O.C. Tanner.

In surveys, companies would often find that employees who had been rewarded with an incentive package claimed they had never been shown appreciation.

"Incentive programs are having to address that now, figuring out how to make employees feel like they're not just the means to an end," Tanner said.

One way that companies have been doing that is by personalizing programs more, communicating more clearly with those who are being rewarded, and including families into the program. It's important, after all, to thank the families who support employees during their many hours of hard work. In Europe, the tendency to include families is only just beginning to take off. Although mixing work and family has traditionally been taboo, especially in northern Europe, those lines are now increasingly blurring.

Hazy Forecasts With Chance Of Trouble
Even as experts continue to discuss the latest tools and trends in the incentive industry, the big question on everybody's mind is, "What lies ahead for 2012?" Event planners in Europe and the U.S. were reluctant to answer that question firmly. Many say that 2011 turned out worse than expected, and instead of trying to guess when the recovery will gain momentum they'd prefer to get used to the new normal. The uncertainty results partly from the fact that contracts are still being signed at the last minute. Karen Shackman of Shackman Associates says most of the RFPs coming in are for events five to six months out, with longer-term deals still the exception.

One thing is for sure: Even as incentive volumes continue to recover, spending on luxuries is likely to remain an exception. Especially in Europe, as companies wait for the U.S. to turn a corner and the European debt crisis to resolve itself, budgets are expected to remain conservative.

Colja Dams of Germany-based Vok Dams summed up the present situation: "I see a light at the end of the tunnel because we're keeping very busy, but I don't think profit margins are going to recover any time soon." One+
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