Incentive Programs and Legislative FAQs

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1. Why should businesses use incentives and recognition programs?

Incentive and recognition programs help corporate America generate positive financial results through people. Business improves when employees and customers are recognized, rewarded and engaged through effectively structured programs with defined goals and proven returns.
In today’s economy, competitive advantage rests with employees because, according to the Brookings Institution, fully 85% of a company’s assets are tied up in intangible resources defined as knowledge, reputation and human talent. Research shows that employee engagement is linked to customer satisfaction and organizational performance. Moreover, better than half of America’s largest companies use motivation programs as part of their business strategies.

2. What constitutes the Incentive Marketplace?

The incentive industry marketplace is estimated at $90 billion annually and includes: Advertising/Sales Promotion Agencies; Consultants, Distributors; Gift Card/Certificate Suppliers; Fulfillment Companies; Incentive Houses; Manufacturers; National Marketing Companies; Performance Improvement Companies; Representatives; Recognition Companies, Travel Specialists and the industry’s major trade publications and trade show managers.

3. What types of incentives and programs are used?

Programs operate successfully today in a variety of ways to support safety, loyalty, years of service, productivity, sales, recognition and engagement. Some types of incentives and their uses are:

  • Employee Recognition Programs: Motivational and rewards programs aimed at employees of a sponsoring company. These programs often target safety, length of service, sales, wellness, attendance and overall performance.
  • Safety Incentive Programs: Recognition programs designed to motivate employees and/or contractors to work safely, drive safely, and work ergonomically in their work environment. A properly designed safety incentive program not only rewards safe work, but also promotes proactive behavior such as making safety suggestions, identifying hazards and joining safety committees
  • Channel Incentive Programs: Rewards programs used to induce certain behaviors from business partners. Initiatives often include streamlining distribution processes, motivating sales, improving speed and accuracy.
  • Customer Loyalty Programs: Programs designed to create loyal customers who demonstrate a preference for a specific brand. By doing so, these programs improve profitability and reduce the cost of new customer acquisition.

Programs can also be designed as:

  • Sales Incentive programs designed to boost sales
  • Non-Sales Recognition and Motivation programs, the most popular incentive strategy
  • Consumer promotions that motivate the end user to buy
  • Dealer Incentives designed for channel partners
  • Business gifts that represent sales potential for the right items.

4. What is an incentive?

An incentive is a reward for performance. It is something valued by an individual or group that is offered in exchange for increased performance activity. To be successful, incentive programs must:

  • Promote or encourage specific actions
  • By a specific audience
  • To produce measurable outcomes
  • Through integrated motivational strategies
  • During a defined time period.

5. What is an Incentive System?

An incentive system is an organized program of business rules culminating in individual awards and/or recognition offered for the purpose of motivating employees. Attributes include: intentionality (deliberately developed with the intention of influencing employee performance); externality (devised and administered by agents external to the employee or employee group); standardization (applied in a clearly defined manner that specifies employees affected by the incentive system, the nature of the incentives and the rules for attaining specified rewards).

6. How effective are incentive programs?

  • Incentives improve performance by an average of 22%.
  • Team incentives can improve performance by as much as 44%.
  • When incentive programs are used to encourage “thinking smarter,” performance improves by 26%.
  • When companies use merchandise or gift cards, sales are 46% better than when programs reward cash.

Longer programs are more effective:

  • When programs are first offered for completing a task, a 15% increase in performance occurs.
  • Asked to persist toward a goal, people increase their performance by 27% when motivated by incentive programs.
  • Programs running six months or less increase performance 30%.
  • Programs that run for a year or more increase performance 44%.
  • Organizations that offer properly structured incentive programs can attract and retain higher quality workers than other organizations.
  • Both employees and managers say they highly value incentive programs. A program’s success and return on investment depends on how well it’s designed and operated.
  • Programs that reward performance based on meeting or exceeding goals, and give everyone a chance, generate the most positive results.

7. Can the use of incentives benefit the well-being of the American workforce?

Regardless of your political view of Healthcare Reform, the American worker needs to become healthier and more productive. By encouraging workers to engage in wellness programs, we can help promote the healthier lifestyles that will reduce overall health care costs, improve worker productivity and influence the worker’s family and friends as they witness the results of a healthier lifestyle. In reality, the long term effects often spread well beyond the workplace. In order to achieve the ultimate objectives:

  • There must be a commitment by all companies to promote wellness programs in order for them to have widespread effects.
  • It must become a national cause that helps leverage our skilled workforce in a competitive global economy.
  • There must be a commitment over time, not just the next quarterly earnings cycle.  Because the average time an employee stays with a company is only 3.4 years, individual companies cannot be expected to make the investment or have a significant impact on the expected long term results.

Well-Being is about Health and Wellness

Properly designed wellness programs can help corporations reduce employee benefit expenses, increase productivity, and positively affect the bottom line. Employee morale measurably improves in 56% of the companies that offer wellness programs. According to the American Institute of Preventive Medicine, companies with effective health management programs can expect to:

  • Generate up to 20% more revenue per employee
  • Improve market value by as much as 16%
  • Deliver up to 57% more in shareholder returns
  • Increase employee time on the job
  • Improve quality of care
  • Reduce usage of outpatient/emergency resources
  • Promote healthier lifestyles
  • Increase employee productivity

A long-term study by Johnson & Johnson, conducted by Thomson Medstat (an Ann Arbor, MI, health information company), indicated that health care costs were $225 less for each employee who participated in a four-year period and voluntary participation increased from 26% to 90% when incentives were offered.

It is much more effective to reward employees for healthy behavior and other benchmarks rather than punish for unhealthy behavior. Companies that have been able to contain costs are more likely to use financial incentives to influence appropriate health care decisions; more likely to provide employees with the education and tools needed to become informed health care consumers; and more likely to offer programs for lifestyle behavior change, smoking cessation and disease management.

8. What kind of incentives can be used for health and wellness programs?

Incentives may take the form of charging less for plan contributions, offering lower coverage levels, providing reimbursement for wellness programs, giving premium discounts to employees who engage in healthy lifestyles and merchandise incentives such as pedometers, yoga mats, T-shirts, water bottles, golf equipment, etc., for participation/registration and when other goals are met. Incentives to decrease tobacco use are the most common and are used by 84% of the employers that offer incentives.

9. Why do we need to offer health and wellness incentives?

Health care costs per employee have ballooned more than 40% in the last five years. The U.S. is ranked 45th in life expectancy in the world due to lack of insurance, high obesity rates, high infant death rates, disparity of care and a focus on treatment rather than prevention. A wide variety of lifestyle risks also impact worker productivity. Changing individual behaviors related to health has been a major obstacle for many companies—and the population as a whole. In fact, the lack of employee engagement (low participation or interest in programs) is cited by 58% of the companies as the biggest obstacle to encouraging employees to live healthier lifestyles and to take appropriate care of chronic conditions. Ultimately, the use of incentives to encourage workers to engage in healthier lifestyles will not only save companies money, but also result in a healthier American workforce.

10.  What is the Incentive Federation?

The Incentive Federation is the umbrella organization for the incentives, recognition, rewards, corporate gift, travel and awards industry founded to promote, protect and conduct research for the incentive field. Since 1984 the Federation has been well known for monitoring and influencing legislation and regulatory issues that could affect the use of incentive and related promotional programs. Additionally, the Federation has conducted many industry research studies that estimate the expenditures that U.S. businesses spend on incentives as well as how incentive programs are used by those businesses. More recently the Federation is planning on being the developer of standards for its members and their clients who employ various forms of incentive and recognition programs and solutions for their employees and customers.

11.  Why should Americans subsidize a tax benefit? Why don’t employers just do it without a tax break?

There are many reasons why the American government should promote this tax benefit:

  • Because tangible incentives are powerful motivators, wellness incentive programs will help reduce health care costs by encouraging workers and, by association, their families to engage in healthier behaviors that reduce medical related costs and absenteeism while improving productivity and competitiveness.
  • After the recent economic recession, most employers are not positioned to make investments in their businesses that will not show an immediate economic benefit. The situation is complicated by the fact that most of today’s workforce changes jobs every few years and would probably not be in place long enough to provide significant performance improvements to a single employer.
  • In order for the country to achieve quick adoption and substantial benefits of wellness programs, the approach needs to be as widespread as possible and incentives are the key. Having a tax benefit that encourages companies to adopt and expand these programs will help spread the initiative and generate deeper and quicker results.

12. How do companies that have incentives in place compare to those that do not?

“Research has shown that an integrated employee recognition system, comprised of different programs targeted for specific goals (for example, improved safety, increased performance or higher retention), is the best way to achieve measurable results.”

Organizations with higher than average employee engagement realize:

  • 27% higher profits
  • 50% higher sales
  • 50% higher customer loyalty
  • 38% above average productivity

The S & P 500 averaged a 45.6% cumulative stock return (1998-2006) while Fortune’s “100 Best Companies to Work for” had a 200.6% return.

13. Why aren’t recognition and incentives considered part of employee compensation?

Recognition and incentives are designed for specific target audiences to achieve specific changes in behavior to accomplish identified goals. Unlike compensation, they are not negotiated as part of the employer-employee hiring contract. While incentives may be open to all employees, they are only awarded to those employees who achieve the program value. They are usually tangible items that have more “trophy” inspirational value than actual goal. Including them as part of compensation would rob them of a great deal of their motivational power and disconnect them from their ties to specific, time-lined objectives.

14. Who does the Incentive Federation represent?

The Incentive Federation is the only organization whose membership and leadership includes all of the industry’s national trade associations, as well as individual industry companies. It is under The Incentive Federation umbrella that the collective interests of the Incentive Marketing Association (IMA), The Incentive Research Foundation (IRF), the Promotional Products Association International (PPAI),  the Recognition Professionals International (RPI) and the Society for Incentive Travel Excellence(SITE) are discussed, nurtured and advanced. For a list of current members, please select the Members tab at: