Incentives and ROI: are managers getting the message?

by Simon McGee

During what can only be described as a very difficult period in global markets, 'incentive' has quickly become a dirty word, amongst marketing personnel and management alike. Despite the fact that many companies operating in the incentive industry have, over the last decade, evolved highly targeted campaigns and programs, and measured the associated return on investment (ROI) that has resulted from them.

Historically, incentives have been ad hocs events which were held to thank and reward employees for good performance. It is perhaps no surprise then, that when companies' performance is suffering that these events (and their associated costs) should be withdrawn. This sentiment still pervades modern management styles.

However, this attitude flies in the face of most of the research conducted over the last 20 years. Withdrawing the very tools that you know motivate, educate and communicate with your employees during the bad times will result in de-motivating staff, reducing performance, poor product knowledge or sales training and poor communication with staff and partners.

Why then, is this still happening?

There is, perhaps, a relatively simple explanation.

During times when performance is good, management focus usually centres on optimising performance and sales, gaining market share, and, normally, this results in increasing marketing budgets. As such it would follow that the questions management want to answer are: how much market share have we gained, how much has annual turnover / profit increased by? Questions about return on investment in programs are often left at the bottom of the pile: it must be working - look at the results!

Even so, many of our industry have been at pains to differentiate our businesses by demonstrating a clear focus on return on investment. Sadly, during the good times, this often fell on deaf ears. With the benefit of hindsight, we should have pressed the message home.

In times of poor performance, and particularly in this recession, which has bitten so suddenly, the focus has polarised in a matter of months, from increasing market share when times were good, to reducing budgets associated with any activity that is perceived to be 'non-core' as markets have worsened. But how can motivating, training and communicating with your staff and partners be construed as a non-core activity when you know that these activities are producing results? It is critical that marketing personnel and management understand that the importance of these fundamental activities. Failing to do so will seal the fate of business performance in a recession. A business that is underperforming, and whose staff and partners are not motivated, educated or communicated with, will fail fast.

Sure, when performance suffers due to adverse market conditions, budgetary constraints must be addressed. The right response must be to strike the right balance between significantly reducing budgets and minimising detrimental effects on performance and motivation.

Sadly, it seems, many marketing personnel are only now learning what return on investment actually means, let alone how it relates to their own business. No wonder then that they are unable to communicate the facts to their management and budget holders. There needs to be a fundamental shift in the way that incentives are categorised, perceived, administered and measured in order to bring our industry through this period.