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Make a Second-Half Rally
May 05, 2008
Here's how incentive experts say firms can adjust their programs to get the most out of 2008
By Rob Carey
We're coming up on the halftime of this year, and Corporate America has a heck of a struggle on its hands. Clearly, 2008 is not shaping up to meet the expectations of many executives. In this weak economy, clients' budget cutbacks and inflation have joined your competitors as obstacles in the path to a profitable year.
But as we approach the end of the first half, there are a few things that you should—and should not—do with your incentive programs so that July through December will be productive and positive at your firm. Maintaining financial health, keeping morale high, and minimizing turnover can be your legacy for 2008, if you take heed of the following advice from industry veterans. And fortunately, none of it requires telling your team to "Win one for the Gipper."
Because many companies started to feel the effects of the slowing economy as far back as mid-2007, more than a few annual incentive programs that were supposed to come to fruition in early 2008 were canceled. "We've heard some companies say, 'Look, we are just not making our numbers, so we are going to postpone things until next year,'" says Pirjo Niemi, senior vice president of operations and purchasing for Newport Beach, Calif.–based incentive and meeting management firm Ambassadors. "Their rationale is that rather than do a compromised, lower-budget program now, they'll wait until next year to do a program that upholds the standard of quality they've always had. Public companies are under more pressure in this area. We've seen some of them pay hefty cancellation penalties on programs earlier this year, but they felt that was the best course of action at that time."
For performers at those firms who were on track to reach a top-tier goal and its corresponding award, Niemi says that some will likely be paid cash or be given a few alternatives, and possibly also receive some credit toward the 2008 goal that triggers the 2009 award. But "our clients often say that they will handle these contingencies in-house, so they don't come to us much for ideas on alternatives," she adds.
Regardless of whatever internal damage control a firm does, cancellation is a risky move. "Yanking a program could have a much longer-lasting effect than you expect. You don't want to run the risk of sending your best performers to a competitor in order to save money in the short term," says Paula Godar, director of brand communications for Maritz Motivation in St. Louis. "The way we work with clients is to make sure that their incentive and recognition programs are tied to their long-term strategy. And good program design should have positive reinforcement along the entire path towards reaching the strategy's end goals—it should not be just the top people getting a single big award. But if that's what the plan already is, then I'd definitely avoid making changes late in the game."
For those executives who think that it's motivating enough to employees that they still have their jobs in an economic slump, consider this: "Your best people always have options," says Chester Elton, senior vice president of performance recognition for Salt Lake City–based recognition firm O.C. Tanner and co-author of the popular book The Carrot Principle. "And if a top I.T. manager or customer-service rep or salesperson walks out, you'll feel it even more in these tough times, because those are the people you're counting on to lead the way through it. If you get complacent on recognition now, the result could compound your difficulties for a long time."
In the coming months, some executives will be tempted to create short-term incentive programs to boost revenues. But "there are real traps with monthly or quarterly programs created with only revenue in mind," says Elton. "You can actually incent the wrong behavior that ends up putting you in a worse position down the road. For instance, a plan that motivates your reps to drain their backlogs to meet a monthly or quarterly target is just making it more likely that you will have a disastrous next month or quarter."
On the other hand, if the firm is not making its quarterly financial goals, and likely won't reach the full year's desired numbers, what is there to recognize and to celebrate? "Behaviors that create the conditions not just for getting the company through this rough patch intact, but also for preparing the foundation to really roll once the economy starts to turn around," Elton responds.
Godar concurs. "This is the critical time to ramp up incremental motivation, and find ways to keep people focused on the steps that lead to success rather than just the success," she says. "If a company sees that many people won't hit their goals and they're becoming discouraged, management can put more emphasis on the milestones toward the sale."
Here's another tack: "Some departments could probably use some sort of training refresher, not just for the current situation but also for maximizing their efforts once things do improve. That is motivating in itself, because it shows people you are still investing in them and implies that their jobs are safe," says Godar. Or if a group is responsible for putting in a new system or process that takes a few months, "celebrate at certain milestones—have executives personally bring around some kind of special treat. Break up the monotony and make people feel good," she adds.
Or put out a call for cost-saving ideas that are neutral to the customer experience. "This gets people thinking, and it can be a reason for them to collaborate, and then you can celebrate as a group," Godar says.
To focus people's efforts more on bottom-line concerns, Elton suggests incentives for reinforcing behaviors that will keep your best customers in the fold. "Put your call center and customer service people on short-term plans that push them to make an extra call or two to each client; this will reassure clients that your company is just fine, because it's still focused on them," Elton says. "Also, incent the accounting team to make an extra call to repeat clients to ensure their financial terms are still good for them; perhaps you can help clients—and impress them—by going from a 30-day payment window to 60 days, just through the end of the year. Short-term incentives can reinforce these behaviors, which set you up for success next quarter, rather than sacrificing next quarter for right now."
As for front-line salespeople, management cannot proceed with business as usual in this unusual environment; some clients have disappeared, and others are spending considerably less than they did last year. So to keep pace in the face of falling closing rates and smaller purchases, "incent reps to boost the potential in their sales pipeline," says Elton. "If you typically want reps to have a pipeline of potential sales equal to three times their goal, create a plan that pushes them to boost it to four times the goal. Encouraging prospecting blitzes and finding new opportunities, plus increasing customer care through more frequent communication with your big clients, will build up your backlog. And all these efforts can be measured."
The Right Rewards
Happily, recognizing each of these behaviors doesn't need to be expensive. "It's amazing how much impact simple, informal recognition can have—many situations don't need more than a communication-based recognition activity," says Godar. "Congratulating people with a catered lunch, a group trip to the movies or to a park, and even handwritten notes proves to your people that they are on the right track, that they are noticed and valued, and that things are setting up nicely inside the company for when the economy improves."
If you are willing to put some money behind a short-term effort, there are a few things to keep in mind. "No matter if it is an individual or team award, you should ask people how they want to be rewarded—and give them more than one choice once you get their feedback," says Elton. "But what you cannot do is be vague about the reward or the celebration you're offering—that's a recipe for mass disappointment and can backfire, hurting morale and ensuring that your next initiative won't get any buy-in."
Also, make sure the individual awards you offer are right for the employees you're targeting. Ambassadors' Niemi says that hotel gift certificates, good for use at any property in a brand's portfolio, are popular lately, and sometimes come with a voucher for two domestic airline tickets. But if your reps already travel frequently for business, gift cards from higher-end retailers would probably be more motivating.
In the end, "Short-term programs can reassure people that they are part of a good organization that is going to get past these tough times," says Elton. Interestingly, there's still a hopeful vibe among many companies for this year: "One good thing is that almost nobody is losing faith completely," says Niemi. "They are booking their programs for 2009."
Sidebar: Where Have You Gone, Vince Lombardi?
Motivating a team of employees with old-fashioned sports psychology and tactics still holds sway in some quarters.
Last September, distressed mortgage lender Countrywide Financial Corp. was fighting to endure daily negative media coverage, defaults by existing customers, a huge drop in new customers, and layoffs of as much as 20 percent of its workforce. So management decided that part of the solution should involve reenergizing its demoralized workforce with the classic "us-versus-the-world" philosophy reminiscent of that portrayed by Kurt Russell as USA hockey coach Herb Brooks in the 2005 movie Miracle.
In this case, the head coach was Andrew Gissinger III, executive managing director of residential lending at Countrywide—and a former pro football player for the San Diego Chargers. On a September conference call with 250 select employees, Gissinger unveiled the firm's "Protect Our House" campaign, for which the company asked thousands of its employees to sign a pledge "to demonstrate their commitment to our effort," one executive explained in the Wall Street Journal. What's more, employees who signed the pledge would be given rubber wristbands inscribed with "Protect Our House" to wear at the office.
As the call was winding down, Gissinger channeled his best locker-room persona. He bellowed: "It's gotten to the point where our integrity is being attacked. Now it's personal...and we're not going to take it!"
Sometimes, though, there is no pep talk that can save a team that's behind at halftime. At the end of October, Countrywide reported a third-quarter loss of nearly $2 billion. And in late March, Bank of America bought Countrywide for $4.1 billion.
Sidebar: How to Be a Hero: Cut Costs, Keep
Quality
It seems that 2008 is shaping up to be a tough year for everyone—including incentive planners. After all, they must maintain the quality and reputation of their travel awards while keeping costs to a minimum.
So we enlisted the help of two veterans—Kevin Devanney, president of Charlotte-based Incentive Travel Solutions, and Wayne Wallgren, president of Dallas-based WorldWide Incentives—to identify the best ways to cut travel program costs so that only the CFO will notice, and not your top performers. Here they are:
• Look to run the program just as shoulder season starts in your chosen destination. Most destinations still have fine weather for a few weeks after high season ends, but the price of four- and five-star accommodations comes down considerably, says Wallgren.
• Consider all-inclusive properties. This keeps your F&B budget (particularly for alcohol) under control. And because leisure options such as tennis, volleyball, windsurfing, snorkeling, beach olympics, and others are often part of an all-inclusive package, you can plan fewer structured events and activities that cost extra.
• If Europe is the place your program needs to be in 2009, be prepared to pay dearly. However, "a number of individual properties, and even some hotel consortiums in certain destinations, will honor the exchange rate of the U.S. dollar at the time of the contract signing, rather than when the program takes place," says Devanney.
• For Mediterranean cruises, programs operated by U.S.-based cruise lines such as Regent also let you sidestep exchange-rate uncertainty." You pay the cruise line in U.S. dollars but get to visit European destinations," says Devanney.
• South America is the new hot spot; it's a safe and cost-effective destination, Devanney notes. Consider Argentina and Brazil as sophisticated alternatives to Europe.
• Monitor participants' arrival times to see if everyone will attend the welcome reception; you might be able to get away with setting a guarantee for 90 percent of the group.
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