Promoting, protecting, and researching the optimal use of incentives, rewards, and related promotions in business.

 Current Legal/Legislative Updates

Incentivizing Safety on the Job

Promotional Products Business magazine recently published an article in its July 2017 issue titled “Incentivizing Safety on the Job,” and you can read the article here. The article tracks the positions of the Occupational Safety and Health Administration (OSHA) for nearly 20 years regarding the use of safety incentives in the workplace.

“Fiduciary Rule” Revisited by Administration and Congress – Impact on Incentive Travel Programs Unclear

The Department of Labor’s (DOL) “Fiduciary Rule” issued in 2016, and scheduled to be fully implemented by January 2018, is under further scrutiny and legislative challenges. The first stages of the regulation became effective June 9, 2017, even though the Administration has ordered the DOL to review the rule and recommend revisions. IFI’s analysis of the rule suggests that there are significant implications for companies offering incentive travel and awards programs to the financial marketplace.

Until there is greater clarity with respect to the new fiduciary rule, some financial institutions may be leery of using incentive or award programs to motivate and/or compensate their employees, while others are restructuring their programs to place a greater emphasis on general recognition and education, for example, instead of providing sales-based incentives.

While not readily apparent in the wording of the new fiduciary rule, which is an amendment to the Employee Retirement Income Security Act, part of the rule does suggest that incentive trips and other forms of rewards or incentives may no longer be acceptable if they present conflicts of interest. See Senator Elizabeth Warren’s October 2015 report, “Villas, Castles and Vacations: How Perks and Giveaways Create Conflicts of Interest in the Annuity Industry,” that was an impetus for the new rule. Note that incentive travel was not the only form of sales incentive targeted.

In early June a round of legislation was introduced to replace the DOL’s fiduciary standard for employer-sponsored retirement savings plans with a new one agreed to by Congress. The Affordable Retirement Advice for Savers Act (H.R. 2823) would repeal the DOL rule and establish a statutory definition of “investment advice” that would, among other things, set standards for providing information about investment options for employer-sponsored defined contribution savings plans, IRAs and HSAs.

In the Senate the Affordable Retirement Advice Protection Act (S.1321)  is similar to the House bill in that it would establish a new paradigm for investment advice for DC plans, but it does not expressly repeal the DOL rule nor create a fiduciary duty for IRAs and HSAs. Additionally, the House has passed legislation  – the Financial CHOICE Act (H.R. 10, Sec. 841) – that includes a provision to assign the responsibility for defining the guardrails for investment and other advice applicable to employer-sponsored retirement savings plans, including 401(k) plans and other defined contribution plans, to the Securities and Exchange Commission rather than the DOL. Nothing that IFI has seen in the proposed legislation suggests that Congress aims to address the contention that sales incentives present a conflict of interest for financial services providers.

For the time being, how any of the proposed changes might affect or give relief to the incentive travel industry remains unclear. For IFI’s Legal Counsel George Delta’s full explanation of the new rule’s impact, click here. The IFI will continue to monitor the proposed legislation and determine if there is any opportunity to positively influence the impact on incentive travel programs sponsored by financial companies.

How the Fiduciary Rule Affects Incentive Travel and Awards Programs for the Financial Marketplace

In his bi-monthly legal update, George Delta, IFI’s Legal Counsel, explains The Department of Labor’s new rule, issued in 2016 and scheduled to be implemented by January 2018, that has significant implications for companies offering incentive travel and awards programs to the financial marketplace. Unless the current administration changes the course of the rule, the new “fiduciary” rule may make incentive programs a thing of the past for those selling financial products to the public.

Until there is greater clarity with respect to the new fiduciary rule, some financial institutions may be leery of using incentive or award programs to motivate and/or compensate their employees, while others are restructuring their programs to place a greater emphasis on general recognition and education, for example, instead of providing sales-based incentives.  Although financial institutions may be overreacting, that is understandable in the context of prior practices when conflicts were rife, as fund companies competed to encourage brokers and advisors to put people in their funds, regardless of the clients’ best interest.  Mutual fund companies also compensated intermediaries with trips to exclusive destinations and other lavish prizes. For a full explanation of the new rule’s impact, click here.

 The IRS Issues Legal Advice Regarding Customer Loyalty and Rewards Programs

George Delta, IFI’s Legal Counsel, has provided his bi-monthly Legal Update for IFI members. The topic covered relates to customer loyalty and rewards programs, so if you sell, offer or manage those types of programs, George’s update offers some valuable information for you, your customers and especially the accounting professionals you rely on.

The Associate Chief Counsel of the IRS has recently issued Legal Advice setting forth its position that an accrual method taxpayer cannot account for the costs of redeeming points in its “hybrid coupon” customer rewards program under the Treasury rules that apply to “premium” coupons.  This legal advice memorandum is important to companies that operate loyalty programs, because if their programs can meet the definition of a “premium” coupon, they would be allowed to deduct their reasonable estimated redemption costs from gross receipts with respect to sales with which they issue points.  (The regulations in question are old, and they refer to trading stamps or premium coupons instead of their current equivalent, points).

In effect, if you can get the points issued under your loyalty program to meet the definitional requirements of “premium coupons,” you can estimate and currently deduct your redemption costs.  Otherwise, you can only deduct the cost of points as customers redeem them.  Deduction upon redemption is the normal rule, so the IRS wants to limit the scope of what constitutes a “premium coupon.”

For a more complete explanation of the IRS advice on rewards programs, click here.

Federation Responds to OSHA Safety and Health Program Management Guidelines

The Occupational Safety and Health Administration (“OSHA”) has issued a revised draft of OSHA Safety and Health Program Management Guidelines. Click here to see the Guidelines. OSHA invited public comment to their proposed revisions and the Incentive Federation and some Federation members have written to OSHA to express opposition to OSHA’s criticism of safety incentive programs. The Draft Guidelines state in a note that, “Incentive programs for workers or managers that tie performance evaluations, compensation, or rewards to low injury and illness rates can discourage injury and illness reporting. Point systems that penalize workers for reporting injuries, illnesses, or other safety or health concerns have the same effect, as can mandatory drug testing after reporting injuries. Effective safety and health programs recognize positive safety and health activities, such as reporting hazardous conditions or suggesting safer work procedures.”

For a little deeper dive into OSHA’s thinking, the agency also references a 2012 memorandum on page 14 of the Guidelines that addresses what OSHA perceives as “incentive and disincentive practices” of safety programs.

In part the memo states, “Finally, some employers establish programs that unintentionally or intentionally provide employees an incentive to not report injuries. For example, an employer might enter all employees who have not been injured in the previous year in a drawing to win a prize, or a team of employees might be awarded a bonus if no one from the team is injured over some period of time. Such programs might be well-intentioned efforts by employers to encourage their workers to use safe practices.

However, there are better ways to encourage safe work practices, such as incentives that promote worker participation in safety-related activities, such as identifying hazards or participating in investigations of injuries, incidents or “near misses”. OSHA’s VPP Guidance materials refer to a number of positive incentives, including providing tee shirts to workers serving on safety and health committees; offering modest rewards for suggesting ways to strengthen safety and health; or throwing a recognition party at the successful completion of company-wide safety and health training. See Revised Policy Memo #5 – Further Improvements to VPP (August 14, 2014).”

To see the Incentive Federation’s response click here

Current Research

2016 Incentive Marketplace Estimate Research Reports 17% Growth Since 2013

Conducted in partnership with market research firm Intellective Group of St. Louis, the study measures the expenditures of businesses for non-cash rewards for employees, customers and partners. The results update studies from previous years and provide details about expenditures spent on gift cards, rewards points, travel, and merchandise by corporate America. New this year, the study also focuses on the number of program owners using award points.

The study of a cross-section of US businesses confirms that award points, gift cards, incentive travel, and merchandise are commonly-used tools for firms seeking to reward and recognize their employees, sales teams, channel partners, and customers. Key findings from the study include:
• 84% of U.S. businesses use non-cash rewards to recognize and reward key audiences in the form of award points, gift cards, incentive travel, and merchandise – up from 74% in 2013
• In 2015, U.S. businesses spent $90 billion on these types of non-cash rewards, a 17% increase from $77 billion in 2013. To see the full research report click here.
Additional inquiries may be sent to IFI’s Managing Director, Steve Slagle.

2015 Incentive Federation Program Design and Support Study Released 

IFI engaged Intellective Group of St. Louis to conduct its 2015 Program and Design Study.  Using a national sample of business stakeholders with at least $1M in revenue, the study aimed to determine the drivers of programs, award types, supplier use and program metrics.  The full study may be reviewed here.  Additional inquiries may be sent to IFI’s Managing Director, Steve Slagle.

2015 Incentive Federation Program Design and Support Study Waterfall Release #1 – Program Goals and Objectives

IFI has released the first of a series of white papers on its 2015 Incentive Federation Program Design and Support Study.  In this white paper, the Federation focuses on an in-depth analysis of program goals and objectives companies strive to achieve when designing an incentive program.  Review the Program Goals and Objectives white paper here.

2015 Incentive Federation Program Design and Support Study Waterfall Release #2 – Communication, Technology and Tools

IFI has released the second of a series of white papers on its 2015 Incentive Federation Program Design and Support Study.  In this white paper, the Federation focuses on an in-depth analysis of how companies utilize communication, technology, tools and reporting within their incentive programs. Review the Communications, Technology, Tools & Reporting white paper here.

2015 Incentive Federation Program Design and Support Study Waterfall Release #3 – Award Program Spending

IFI has released the third in a series of white papers on its 2015 Incentive Federation Program Design and Support Study.  In the latest release, IFI puts the spotlight on program spending.  Click here to learn more.

2015 Incentive Federation Program Design and Support Study Waterfall Release #4 – Engaging Outside Program Support

IFI has released the fourth in a series of of white papers on its 2015 Incentive Federation Program Design and Support Study.  In the latest release, IFI puts the spotlight on engaging outside program support.  Click here to learn more.