Incentives 2011

By Dalia Fahmy - ONE+, September 2, 2011

Times 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.