Pandora’s Box is opening

What a week for the incentive industry!  Let me say that I am speaking about the incentive industry here, not to be confused with the meeting industry or the special event industry.  With all of the “junket” reports flying around it is hard to know exactly what industry is being torn apart.  An incentive program is earned by the participants, they had to achieve this to get that.  A meeting could simply be that, a meeting of a sales team to learn about a company product or service that they are bringing to market.  An event can be a company picnic or any outing like that.  The big difference here, an incentive is something earned and you are enjoying an award (travel or other non-cash award) because you achieved above and beyond objectives.  Meetings can be a required (just because you are in sales you have to go to Vegas) attendance proposition and events are the same (although you don’t really have to go to the picnic, but you should).  Now that I have that in order, on to Pandora’s Box.

No question a great deal of the incentive programs have been operating for many years under the same rules (qualification process) and many of the same people have been “winning” those awards year after year.  It becomes more of an entitlement than an incentive.  The justification is that these are “our top performers” and they should “win”.  So, why bother with any rules?  I spoke to three incentive company executives this week that are starting to worry.  They are worried that when (not if) we come out of this recession they are going to have to really begin (begin key word here) to show that the incentive programs they have been doing for the past 5-10-15 years actually are doing something to improve the financial condition of the company that is sponsoring these programs!  They are very concerned that when Pandora’s Box (their words, not mine) is open, these customers will say “what have you been spending my money on all these years?  Why all of a sudden are you just now starting to look at this”?  I guess they have reason to worry, the eyes of more than those annual “winners” will be on the rules, the numbers and the winners list more than ever.

Pandora’s Box is open and I think it is about time!  I have a novel idea and I did propose this to my three friends.  Instead of trying to make deals for your customers (that usually means lesser quality I don’t care what you say, it does) why not just tell them you will manage their incentive program based on the measured return you get from it?  Haha, good luck there!  My three friends told me no way, no way and no way!

Your thoughts??  I mean talk about putting your money where your mouth is, anyone hungry??

Incentive Economics 101

I have really struggled with what to address in this blog.  There is so much flying around that I could never hit all of the hot topics.  So, after some thought I decided to start with Incentive Economics 101.  Funny, I am willing to bet that most of us (I majored in Finance, so I actually had quite a bit) don’t remember those economics classes in college.  Probably got through them okay but have not really had to use it (like my Colbalt Programming class).  Well, now it seems we have economics galore!

So, incentive and economics, let’s start with the basics.  First and foremost, I am speaking about Non-Cash Incentives, the very same incentives that our media darlings have called “junkets” and then some that involve merchandise or other non-cash awards.  Incentives that involve the cash bonuses that we are all up in arms about is essentially a part of compensation.  The issues around how much they should be and who gets what should be studied for sure, but I am not taking that topic up here.  I am starting with incentive economics 101.

It starts with a definition of incentive.  To me, an incentive is something that is put out in front of a person or persons with the intent to have them achieve above and beyond results.  The key is to be sure that the expected above and beyond results can in fact, with that added effort (above what you pay for) can in fact be done.  So, assuming we all agree on that premise and go from there, here is what it looks like:

The incentive requires an incremental change to happen.  If that incentive has been properly vetted through the entire organization (no front end loading or jamming things into a broken system) the end result should be an incremental (increase you would not have received without the added above and beyond effort) increase in the area that you have identified for the incentive.  To make this easy, let’s just say the incentive is to incrementally increase sales of widgets.  Again, if the vetting is okay and the company can procure, assemble, ship and provide support for the additional widgets and the widgets can be sold at or above prevailing margins (considering all related expenses) and the invoices do not generate extended accounts receivable, the net result will show an improved bottom line (and may also improve cash flow).  Let’s say this incentive has all of these qualities ( I think the industry now knows they better start doing this), here is what that economic impact may be:

The company now generates additional sales, that increases production, that means production employees have to be there (jobs are saved), in some cases (discovered during the vetting process) new jobs are created to handle the incremental volume (jobs in production, customer service and maybe accounting).  It should be noted that these non-sales employees are not receiving a tangible incentive award.  What they are receiving is a solid job and now the back side of that for them, the company is generating additional profit and lowering borrowing costs by increasing cash flow.  Easier to pay benefits and provide salary increases when that happens.  The sales team, yes, they get a tangible award, which amounts to approximately $0.40 in terms of cost to the company, that is $0.40 for every incremental dollar they brought in, that means $0.60 goes back into the company.

There’s more!  Let’s say this award was a “junket” to Hawaii.  Payments to hotels, airlines, ground operators and restaurants to name a few certainly add economic value to the destination.  If the award was merchadise, the added sales to those manufacturer’s passes through to them and their employees.  I don’t know about you, but I see a pretty good economic model here, what do you think?

A Potential Solution

This past week has caused a flurry of activity for the Incentive & Meeting Industries.  Wells Fargo Bank came out with a positive statement about their “program” in Las Vegas and then just as that hit the airwaves, they canceled it!  The story never did say for sure if this was an incentive program or a meeting, they almost never do.  What a shame, I think it is because the planners of these programs don’t really understand the difference and when they get a microphone shoved in their face, they ramble about how these “meetings” are for their best people, etc.  Why not say, if it is a true incentive program, that these people, who are here to enjoy the fruits of their extended efforts to help maintain jobs, create more jobs and have added measurable incremental profit and cash flow to our business and the economy.  They deserve to be treated to a few days of this so they can come back and do it again.  In other words, they earned it, they did not “win” this trip!

Okay, that is never going to happen unless some of the “professionals” in both of these industries come to realize that it is not about the trips and toaster ovens.  That is a whole other blog story though.  This entry is about a potential solution.  I recall many years ago when I was fighting with a CFO at a client company for incentive travel budget money.  This was before I saw the light, that being that incentive programs can (and do) create a measured ROI.  So, in those days before I uncovered how to create a true measure of ROI, I say I used to spend company’s incentive budget money really well.  I did that by delivering a true value for what they paid and I had full disclosure on costs and my management fees.  Well, this one CFO was not happy and wanted to “eliminate that budget” because “these sales guys are over-paid already and they get all of these perks”.  After a long battle I offered a solution.  Fire all of the sales team.  Get rid of everyone of them and free up all that budget money!  As you can imagine, that took our conversation (it actually became one at that point) to a whole new level.  He didn’t (and could not anyway) fire the sales team, but that statement at least made him stop and think more about what they actually do.  I mean really, take away the sales team, sell no more product and why do you need the rest?

Okay, so the solution for the incentive and meeting industry?  Stop whining about it and just tell all of the hotels, the CVB’s, the cruise lines that there will be no more of these incentive and meetings performed.  Stop them altogether.  Think there will be an economic boom because of that?  Doubt it.  Think there will be a major loss of economic commerce?  You bet.  I live in California (sorry, someone has to be here).  California, like a lot of states today, is having a budget battle.  Here our Governor (The Terminator) has decided to furlough state employees two days a month, starting today.  The idea is to save payroll for those employees who now have a non-paid day off today, save on heat and lights in those offices and other related expenses required to open for the day.  That will surely happen.  In addition, their are restaurants, cafes, newstands and other local businesses that will have to be open (or not at all) that will see hundreds less in terms of shoppers as these state employees are not there.  Think that will impact those businesses?  You bet it will.

Take this concept one step further.  Congress and our new President are trying to hammer out a new spending/investment bill.  We, the American people, out number them by a lot.  Let’s all just STOP doing what we do, even for just a few days.  Don’t pay any bills, don’t perform any work, just stop and let’s see if that gets their attention.

Hey, it is a crazy idea, but you know what, it sounds better to me than some of the crying I have heard this week!

Shut off that TV

I have to admit, I’m one of those guys that watches TV with the remote firmly in hand.  First sign of a commercial (even during the Super Bowl) and I’m clicking away!  These days I am finding nothing but the same thing, no matter what talking head show I get to.  Bad news….bad news.   Is there anyone in the media (including the media for the incentive industry) that has the courage to do something different?  I understand the news is what it is, but truthfully, it is reported as though there are NO, ZERO, jobs left and nobody is buying anything.  That means that that flight I just came off of must have had people sitting in every seat that I imagined.  Same is true for that restaurant that made me wait, for a single seat, for over 20 minutes on a Wednesday night last week!  Come on, unemployment is at 7%, employment is at 93%, never hear the 93% reported.

Just yesterday I received an E Mail from a colleague of mine about a classified employment ad that appeared in the Wall Street Journal.  The article, signed off by the company CEO, was advertising for Sales Professionals to apply at the company.  It boasted about their cash compensation plan (in six fiures) and the incentive trips they get if they over achieve their sale objectives.  Even had color pictures from past incentive travel programs on cruise ships in Europe!   That should not be uncommon.  Why are some companies hiding in the closet?  In a word, MEDIA.  They are afraid they will be heard or seen as not caring, or heaven forbid, spending money on incentive programs during these tough times.

Truth is, the companies that should be hiding are those who are (and have been) spending money on incentive programs.  You need to change your ways and do it now.  Start investing in these programs and you too can come into the light!  I know, I know, investing takes more time and effort, it is so much easier (and more fun too) to just book a trip or get a fancy web site up for our team.  Good luck with all of that, see ya in the news, I going to shut off the TV now, have a great day!

Back in the Valley

I am in Silicon Valley for a couple of days.  Been a while since I have been here and I must say, I forgot how much of a thrill it can be.  Not just dodging the drivers here, that certainly wakes you up as soon as you enter the Silicon Valley Area, but just the monuments you pass, Yahoo, E Bay, Google, Intel and the like.  I was cruising (yes, dodging) from appointment to appointment yesterday and I kept thinking this is what it is like when you drive around Washington DC.  I recall those days as well, when I used to spend a lot of time there.  After a while it was no big deal to pass the White House (these days, you cannot drive that route), the US Treasury Building or the Capitol.  Same here, it was no big deal to me when I spent so much time here, now I am glancing all about (and yes, keeping a sharp eye on that driver next to me who will no doubt cut across three lanes to exit any minute).

The business climate here is rather good, considering what you see in the media.  Not one company that I have met with has been talking about the recession or cutbacks.  Maybe tSilicon Valley has been through this so much before, the ebbs and flows of a fast paced world, that this is not as big a deal to them as in other places I visit.  I rather enjoy meeting with people that see the glass as half full.

From the horses mouth

The one thing I have learned about our current economic climate is that people are very willing to talk about things they never have before.  As a professional in the incentive industry I have been conducting random interviews with everyday employees about their inner feelings towards their job and employer.  Very interesting stuff!  Almost without exception I am hearing loud and clear that the level of communication, in both good and bad times, is what makes the difference.  During the good times, when these employers were conducting incentive programs (most aimed at sales people or dealers, not my audience for these interviews by the way) the employer would almost “never” communicate to the line and staff employees any details about the incentive program.  So, that left the best method of communication to get the word out, which of course would be good old gossip and word of mouth.  Some of these interviews revealed to me that sales people, especially those who have the rather large ego (I know I’m going to win this trip) would brag about where they would be during the time of year when the rest of the company would be shoveling snow or handling all of the back end workload that the incentive program produced.  You can only imagine how these people resented that incentive program and of course without a true measure of financial success in place, not one of the management team wanted to address this with any communication. 

During our recent time, these same companies are very hush hush about any incentive programs (yes, many companies are still having them) and in addition, they are keeping plans about lay offs and other reductions in benefits at bay.  So, as with the incentive program, employees turn to word of mouth and gossip about “who is next” to go and what will happen “if”.  Isn’t that great for a productive day!

I wonder what it will take to get some managers to wake up to this?  Any thoughts?  How are you spending your day?  How many hours are really spent thinking about this or speaking with other employees or your family members about it?

How much?

On Tuesday we had quite the “party” in Washington DC.  Our new President introduced his vision to all of us, over 2 million of which braved the cold air to hear it in person.  Wait a minute, let’s take a closer look here.  Over 2 million people came to Washington DC.  To get there (remember this movie?) they took planes, trains and automobiles.  Once they arrived, they stayed in hotels, motels, inns and rented rooms in private homes.  They ate, drank and spent money on memories of the event itself.  The numbers have not all been calculated yet but I am guessing that the economy got a financial boost from this event.   President Obama gave us a strong message, as our country’s CEO, he told us to go out there and do our part.  Achieve our objectives so the country could achieve theirs.  Sounds like an incentive program kick off meeting to me.  The kick off did not end there, parties took place throughout the night.  So, if AIG had conducted this event, would we all still have a glow about it?  Sure looks like the same concept to me.  Assemble the people in your organization that can make it happen.  Inspire them to reach beyond where they are to achieve over and above objectives and do it all with flair to get them pumped about it. 

If this incentive kick off created (and we know it did) so much for our economy, what do all of those incentive programs, the same programs many companies are shying away from, do for local, regional and national economies?  I am betting a lot!  Yet, instead of moving in this direction, many companies are running the other way.  Why?  They might have their company CEO on CNN giving the troops the message and then enjoying the moment by having them gather to play off each other and build that energy together.  That sure looked like what I saw on CNN Tuesday night and this morning as well.

Incentive programs work for us all.  Whether or not you are directly involved in an incentive program inside of your company or not, these programs produce incremental results that contribute to your benefit.  If we all started to look at these programs as what they truly are, our economic woes would be over much faster.

Incentive Doom & Gloom

I’m in Key Largo FL at a beautiful resort, The Ocean Reef Club, oh my!  I should not be telling you that!!  That might get out in the news and so many readers will think I am just an awful person to be here while our economy is doing so poorly.  I am here on behalf of The Incentive Research Foundation, we’re having our Board of Trustees Meeting here and I am quite proud to be a part of it.  During my long trip here yesterday I am ample time to catch up on my trade magazine reading.  Full of Incentive Industry Doom and Gloom articles, they caused me to smile all the way here.  Why smile?  Simple.  For years I have preached to our industry about the importance of really showing what incentive programs do, financially.  Despite my best efforts, I still cringe when I read quotes from Senior Executives in our industry and they call incentive qualifiers “winners” and often refer to winning an incentive award.  Well, if your incentive company is running contests and lotteries, I would say you should be worried.  What company wants to spend money on a lottery these days? 

Companies, and yes they are out there, that actually invest in their incentive programs are in a different position.  Those companies are the same companies that typically tell me that they do not use the services of a incentive management company.  Why?  “They cannot offer any value to our program”.  Deeper discussions reveal that the incentive companies that attempt to get this business are attempting to do so by spouting “savings”.  Read between those lines and you find, “we’ll get a deal for you”.  Just what an incentive qualifier, someone who EARNS an incentive award, not wins a chance to participate, wants to see and experience.  They achieve the objectives to earn an award that some incentive company has negotiated down to the bottom.  Nice.

The Incentive Industry will be just fine.  Even some of the lottery and contest companies, that say they are “performance improvement companies” will be around.  Some will not.  One thing for sure, the rules of this game have changed, forever.  I for one am pleased to see that.  I am sorry it takes so much pain to show this, but it has to be.  The Incentive Media, you guys need to catch on, stop playing to your lotto companies and start reporting on true financial change recorded by incentive programs.  It is out there and harder to find than that whining incentive industry executive who is trying to hang on to an award lottery program.

A Week of Change

This is an historic week for our country.  Our new President takes office and the fact that he represents the first African American to hold that post is proof that we are able to change.  I, like millions of Americans, wish him and his team the very best.  Hopefully we all recognize that while this one man can lead us, it is what we do as followers that will dictate the outcome.  President Obama and his team cannot do the field work for us, that is up to each of us to do.  This very same approach works in business everyday, or at least in those that truly practice it.  While good business leaders can craft a solid plan and bring in a management team to help them unfold it, it is the staff and line employees that make it happen at ground level.  Sometimes, with all of the fluff flying around and in the rush to meet or beat investor expectations, companies lose sight of this.   It becomes apparent when things tighten,as they are now, and the first thing companies do is reach for the pink slips.  Let’s hope that this week things will change and that companies will realize that people, employees especially (and your customers!) are your most valuable asset.  Let’s hope that this change is not a temporary change, but one that lasts.  Let’s hope that this change has a ripple effect and carries through to those investors who hang on every new revenue report and stock price expectation. 

A week of change?  Maybe, maybe not.  What will you be doing?  What has changed in your world in the past year?

Flight 1549

By now we have all watched the news footage of US Air Flight 1549.   As a frequent flyer and one that has been on board my fair share of plane rides that were not exactly perfect, I have a fond appreciation for that crew, many thanks to all of you for what you did to ensure the safety of every passenger.

The safety of every passenger on this flight did not just happen.  A plane going down is probably one of the frightening experiences for any of us.  The crew on this flight reacted in a manner that shows the importance of not just learning the safety procedures, but actually reacting to them as if you had to do that on every flight.  That does not just happen.  While some of our businesses are not in a position to have the lives of 150 plus people in their hands, many of us have at least one, even if it is just yourself.  Safety training is taught at all levels.  Meetings are held, videos are shown and employees are required to say they were at the meeting and saw the video.   If that is where your safety training stops, shame on you!

Safety should be a habit for all of us.  Safe behaviors need to be reinforced daily so that they become habits.  When that happens, your employees will react like the crew of Flight 1549 did.  They will immediately know what to do and how to do it.  So, the next time you have a thought about a safety incentive or recognition program and your mind goes to “yeah, but I have no budget for that”, think again.

Safety incentive and recognition does pay, it is a worthy investment and the crew of Flight 1549 proved that yesterday.