Incentive schemes are big business, writes Belinda Beresford
It’s nice to be wanted. It’s even nicer if your desirability is displayed in a concrete way, say by an exclusive lounge at the airport, special discounts on purchases, a bigger company car or even the odd little gift.
Motivating people to do what you want is one of the holy grails of management and marketing, hence the growing industry dedicated to it.
In South Africa this “incentive market” is estimated to be worth around R1,4-billion a year – a mere shadow of the pace-setting United States market, estimated to be worth $23-billion.
What people think motivates them and what actually does are not always the same. Many of us woud regard money as the ultimate inducement. However, Achievement Awards MD Geoffrey Amyot says incentive schemes which offer cash are only about a third as efficient as non-monetary schemes.
Cash is impersonal, it tends to disappear into the pay packet and get spent on routine things. The “13th cheque” fails as a performance stimulant because employees simply mentally add it to their annual salary. Non-monetary awards of whatever kind tend to stick in people’s minds.
Incentive management requires good use of psychology and research to determine exactly what strokes suit which folks. The technique of giving people fancy titles (sometimes instead of a pay increase) is a well-known motivational management routine. Other people may be stimulated by the prospect of more material gains, such as a holiday.
Woolworth’s gift vouchers are strong favourites, particularly with lower-income groups, whereas wealthier groups tend to be more interested in television sets and the like. Amyot says overall small electrical appliances are still the most popular prizes – 10 years ago the pop-up toaster was the height of desirability.
Although such relatively easy manipulation says much about the gullibility of the human race, Amyot says people are extremely sensitive about being duped. Rewards have to be achievable and immediately gratified, else the participants are likely to turn against the scheme.
Prizes also have to live up to the mental images created by the marketing campaign, otherwise they can generate a strong backlash – particularly problematic if its your company’s top salesperson who has been disappointed. It is often the anticipation and dreaming which stimulates people, rather than the actual prize itself.
Incentive schemes are becoming increasingly sophisticated and targeted to prevent unsatisfied customers from turning against the company offering the programme.
Absa, for example, estimates that between 20% and 40% of bank loyalty programme customers never qualify for a reward. General manager Bart Hogendoorn said this led Absa to introduce a R30 entry fee for customers joining its recently launched loyalty programme. The fee did not cover the administration costs for a new member, but it did help filter out those customers who were unlikely to spend enough to win prizes and so prevent the scheme building up unsatisfied members.
One famous example of a customer backlash occurred in the United Kingdom when a household appliance manufacturer miscalculated the number of potential winners and cost for its promotion programme. The backlash ended with massive bad publicity, court cases and senior members of the company leaving in a hurry.
People get jaded over time and need new stimulation, which means promotion schemes tend to follow trends. Coupons can be popular for a while, then competitions, scratch cards or loyalty schemes.
It is estimated that about 1 000 South African companies use incentive schemes of one form or another.
Originally they tended to be used by retailers, such as car dealers, trying to win and retain market share, but increasingly they are including a customer- service element. South Africa is also seeing the development of incentive programmes for general company staff, rather than just sales people.
Although winning an all-expenses-paid holiday to Hawaii as your firm’s top salesperson is a great thought, it can come with a price tag in the form of tax.
South African Revenue Service representative Christo Henning says rewards given by an employer to an employee are a fringe benefit and taxed accordingly. This includes holiday accommodation and travelling costs as well as physical gifts.
Henning says other incentive schemes, such as those giving air miles or prizes for using banking facilities, are regarded as a capital gain and therefore non-taxable.
So if your employer pays for your travel but you buy the tickets on your own credit card, you are not taxed on those air miles or anything else you might choose to spend the points on. But if you win a trip as an incentive from your employer, you are taxed.
Henning says the taxing of incentive schemes could be changed in the next Budget review, but declined to speculate further on what such changes could be.