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Incentives: Recession makes money-off vouchers a more desirable incentive

Few employers can offer experiences such as balloon flights or exotic holidays in the current climate. Money-off vouchers now have wider appeal to cash-strapped staff.

What do cash-strapped employees really want as rewards when times are tight - a nice-to-have (but hardly necessary) 'experience' such as a balloon flight or a trip away? Or would they much rather have down-and-dirty, good old-fashioned money in their pockets? It is a question that no longer seems to be as snobbish as it once was. Money may have appeared 'tacky' in more buoyant times, but there are signs that the tools to retain happy employees - benefits and incentives - are increasingly going back to basics, with more interest in money-off vouchers and coupons.

Kevin Harrington, development director at Sodexho, believes the time is right for this type of benefit to come to the fore again. "Smaller benefits like vouchers can work very well in this climate," he says. "People want help with more basic things now. The difficulty with other fiscal-based rewards, such as bonuses, is that they tend to get rolled into everything else, food, bills, etc. Coupons, however, are more meaningful, and can be used to reduce household expenditure. Companies that spend, say, 3% of payroll on rewards can easily add vouchers to daily targets. Employees can then also focus on smaller rewards and build them up into something bigger."

Despite the economic gloom, the emerging picture of the incentives market is its use of vouchers as rewards. A survey by the CIPD this year found just over a quarter of UK companies were running a rewards strategy while 24% plan to take this approach this year (see box, p38). According to incentive provider Grass Roots, which ran a survey of 800 incentives buyers, many companies are also looking to retain their incentives budgets, yet fewer of them are spending it on the typical 'trip abroad' for the top performers, something that normally ends up being won by the same old faces. Employers have instead moved away from this to something that is more encompassing.

One company that has launched a scheme along these lines is EasyJet. Three years ago it introduced Going the Extra Mile (GEM) offering rewards staff can bank online and redeem for vouchers. Two factors about the scheme were it was easily measurable and allows employees to nominate colleagues. Andy Turnbull, organisational development manager at EasyJet, says: "We haven't had to put a lot of money into it but people are still willing to take part." He also adds the scheme is perfectly suited for the downturn. He says: "We're not planning to change anything for this year. But rewards are generally a pretty good thing to have in our sector."

Voucher credibility

But although back-to-basics money-off vouchers are being seen as a useful tool that helps staff with costs that are worrying them, the credibility of the voucher sector has been hit recently by the collapse of Woolworths and its voucher provider, Flogistics. The company, whose vouchers were also redeemable at Comet and B&Q, was one of the biggest business providers in the market. At the time Woolworths suspended trading, millions of vouchers were in circulation, many of which were being saved up by employees for a big purchase at Comet or B&Q. Overnight these two retailers pulled out of the scheme making the vouchers practically worthless and ruining the currency of many incentives schemes. Now many companies are concerned this could happen again and are insisting on checks. "Clients are asking to make sure we're secure," says Harrington.

Barring another Woolworths, a straw poll of companies from vouchers providers Love2Reward to reward specialist Projectlink Motivation revealed all were positive about the use of vouchers in a recession. The typical response was that in a time where employees know their jobs are under threat any pecuniary benefit would be welcomed.

On the other side of the fence, though, Lee French, director of benefits provider Alexander Forbes, warns benefits managers not to ignore other rewards, and that they should not put all their eggs in the vouchers basket. He says vouchers must simply be "part of the overall objective" in retaining and motivating employees.

Is this happening? Rather than companies moving in one particular direction, it appears there is some middle ground between incentives and benefits spend, with flexible benefits employees looking to save money on salary-sacrifice schemes such as Ride to Work and childcare vouchers. Rather than veering towards incentives or benefits, employees seem to be more motivated by saving or earning money.

This is backed up by Richard Davies, head of employee benefits at P&MM. Davies says salary-sacrifice schemes have become very important and cites the case of one company where take-up of childcare vouchers have risen by 30% out of 20,000 staff over the year. People are unlikely to get pay rises this year, he says. This means they are going to look to make savings. Other products include Holiday Plus, where workers can pay off parts of their holiday, and Greentravel2Work, where they can purchase annual train tickets tax-free.

However, it's not just employees who are looking to make savings. Davies says: "HR managers looking to see what value they can get will go back to the market and re-pitch. There will be a huge increase in new business from re-pitches to shave costs."

Duncan Brown, director at the Institute for Employment, believes there is more change to come. "Costs are crucial. But I'm not seeing employers with flex schemes getting rid of them. They like them. They're easy to run. Yes, historically incentives are growing but the interesting thing now that earnings are taking a drop is what is that going to do to incentives? They are dependent on targets being hit and a lot of schemes are not paying out."

Brown says the recession is going to test how incentives and benefits are used and whether it is going to help the company or encourage employees who expect the carrot before the stick. Whether rewards increase will depend on external concerns such as the economy but the biggest challenge for companies using incentives will be to generate value for money while at the same time ensuring employee engagement.


Experiences and trips have undoubtedly taken the brunt of the changes to reward and incentive budgets and they seem to be on the decline. But whereas these schemes tended to be focused on the top performers, now the rewards tend to be tactical and extended to more people. Two events and experiences specialists give their thoughts on how the market has changed for them since the downturn.


Tapenade's corporate business is based around corporate hospitality at events such as Henley Regatta and Silverstone Formula One and these have taken a hit. Stevens says this is down in the region of 20% to 25%.

Typically Christmas is Best Parties Ever's busiest time of year and, despite the downturn last year, it ran events at 11 different venues. However, founder Tim Stevens admits it was a difficult time and like John Saunders believes many companies were concerned about the perceptions of having an expensive party when they were making people redundant and whether the press would get hold of it. However, Stevens is looking ahead. He says: "The coming year is still untested but what we hear is that companies will have made staff cuts and redundancies so they may feel more ready to give people a morale lift."


"It's a completely different market now," says Saunders. Altitude specialises in rewards trips for its corporate clients, and he admits it has been hit hard, especially by the collapse of many of the financial institutions. Perhaps more worryingly, it is not thinning budgets that have caused a loss of business but the perception of glamour associated with trips abroad. Despite the fact that they can be relatively inexpensive, many companies are worried about media coverage. Austerity could well be next season's colour.

Another worrying factor is the trend for incentive trips to fall through at the last minute. "People are not fulfilling the targets to get the trip," says Saunders. "We don't do the creative side of things like saving points. We do the end deal. For example, they might want us devise a scheme for a weekend in Valencia. We've had clients come up with the idea but they haven't made the targets to pay for the break."


On the surface it would appear incentives are in a relatively healthy position when it comes to dealing with times of economic strife. Grass Roots carried out a straw poll of incentives buyers and found the vast majority believed incentives were a good way of gaining a competitive advantage for the business. However, the survey also found that 63% of companies would be looking to use incentives in short tactical bursts rather than as part of a long-term strategic goal.

But it could well be that these programmes will have a tough time engaging employees. A survey by Accor of 1,500 employees found they are unaware which schemes their company are offering. Employee engagement in the workplace is in decline, with only 50% saying they were engaged as opposed to 57% in 2005. More worryingly, only 29% of employees felt fulfilled in their job compared with 40% in 2005.

Rounding this off is some insight from the Chartered Institute of Personnel and Development, which surveyed 520 organisations employing a total of more than one million people between August and October last year. It found that 24% of companies planned to create a reward programme this year. However, this is down on 2007. In 2007 33% of respondents said they already had a rewards structure compared with 26% for this year. Budget constraints were cited as the biggest inhibitor of a reward strategy followed by line management skills.

Drawing conclusions CIPD reward adviser Charles Cotton says surviving the next 12 months will be the priority for some companies, but he warns them not to regard incentives as superfluous. He says: "Some employers may think they do not need to bother with a reward approach when the dire state of the economy should be enough to help them attract, retain and motivate staff. However, such an approach may help them in the short term but this attitude will not build employee engagement and can lead to problems when the economy recovers."