Buyer’s guide to motivation vouchers (December 2008)

Vouchers remain popular as a means of motivating staff, says Tom Washington

As benefits practitioners continue to look for ways of engaging staff, motivation vouchers remain in demand. According to Andrew Johnson, director general of trade body the VA, there has been a rise in business-to-business activity, which he attributes to the choice vouchers offer. “Employers have become more aware of the value of vouchers and electronic gift cards, which give them a great way to incentivise staff but do not pigeon-hole them,” he says.

Nevertheless, the current economic climate has had some effect on the motivation voucher market. While the downturn has caused employers in some sectors to move away from the perk, others have found vouchers to be a cost-effective way of giving something extra to staff. Andy Philpott, marketing director at Capital Incentives and Motivation, says: “How do you motivate your workforce during these times? Vouchers will certainly have an important part to play. We have seen the financial and automotive sectors, which normally run motivational schemes, cutting back. But in the public and IT [sectors], growth is still very strong.”

Tracy Aslam, head of incentive business at Kingfisher Gift Vouchers, adds: “We have [experienced] a marked increase in contact from HR departments wanting to offer vouchers as a voluntary benefit and it has definitely got something to do with employers wanting keep hold of their staff.”

Motivation vouchers are available in paper form or as electronic gift cards. Paper is still the preferred type of voucher, making up about 85% of all sales in the business-to-business market. This is in contrast to the consumer market, where electronic gift cards represent 75% of sales. Most providers agree there will be a long-term migration from paper to electronic cards, estimating that 75% of voucher business will have switched to plastic by 2012.

The rise of electronic gift cards, which are often linked to individual retailers, has been a catalyst for further technological advancements in the market, making the process of offering vouchers quicker and easier for employers. Many organisations use an online voucher system, which enables employers to reward individuals at the touch of a button by topping up a pre-pay gift card. “You can give an employee a card at the start of an incentive programme and it can be reloaded whenever necessary without having to issue more vouchers,” says Johnson.

Branded credit cards†

One development in recent years has been the launch of branded credit cards, onto which employers can pre-load credit for staff to spend at a range of selected retailers. Kuljit Kaur, head of business development at P&MM Motivation, says employers are starting to use such cards more widely. “Employers can brand a Visa or Mastercard, either with the image of their company or a specific campaign or initiative, and top it up with credit throughout the [motivation] scheme,” she says.

Some providers have taken this further and have developed a product that allows employees to put part of their salary onto the branded credit card under a flexible benefits scheme. They then receive discounts when using the card at certain retailers.

New technology is also helping reward practitioners with strict budgets to link vouchers with commercial performance, for example, by tracking improvements made by individual employees. Providers such as Sodexo and Capital Incentives have also developed products that provide management information to help justify expenditure. For example, they can track the life of a voucher once it has been awarded to see when and where it is spent.

Kevin Harrington, research and development director at Sodexo, says: “A consistent issue for employers is to be able to demonstrate return on investment. To help them calculate this, some online reward platforms have a built-in return-on-investment calculator.”

But despite such advances, a number of providers believe electronic gift cards have a long way to go before they replace paper vouchers completely. Catherine Forrest, business incentives manager at House of Fraser, says: “There remains a strong emphasis on paper vouchers in the business-to-business sector. While many employee benefits suppliers are providing gift cards, demand is not as high as in the consumer sector.”

Tim Ward, commercial account manager at John Lewis Direct, adds: “We have not seen a sudden demand for electronic cards and do not plan to move from paper to plastic [vouchers]. People like having the paper voucher to spend. It has a higher perceived value than an electronic card.”

Electronic gift cards must continue to evolve, if they are to provide a valued point of difference from paper vouchers, says Kingfisher’s Aslam. “Functionality of gift cards is something that will change over the next 12-to-18 months. For many at the moment, they are simply a substitute for paper, but there are some exciting changes ahead.”

Future developments in motivation vouchers

Looking to the future, there are concerns that some smaller providers may struggle during the economic downturn. “The last couple of months have seen one or two businesses move into administration in the card-processing sector,” says Harrington. “There is evidence there may be some combining of businesses to try to contain costs. The indicators are that employers want to make safe decisions and this usually means engaging with one of the larger, more established suppliers.”

The number of providers in this highly-competitive market also looks set to increase, as more retailers introduce their own motivation vouchers, particularly at the value end of the high street. The success of brands such as Marks & Spencer and John Lewis in the corporate market, for example, has prompted the likes of New Look and Matalan to follow suit. “We are seeing more suppliers and retailers who have had a good run during the credit crunch making inroads into the B2B market,” says Kaur.

Another potential area for market growth is within the public sector, says Philpott. “We have seen it investing more and more in motivation.”

A possible change in legislation could also open the market up by making it less restrictive, says Johnson. “The government is currently working with the Treasury and the Financial Services Authority to ensure that definitions within the E-Money Directive and the Payment Services Directive match up. If this happens, it will become easier for providers to offer vouchers that can be spent at a range of retail groups, rather than just one.”†

Focus on facts

What are motivation vouchers? Motivation vouchers can be either paper-based or electronic cards with a monetary value that employers can offer to staff as a motivational tool. Electronic products allow employers to load money onto a card or into an online account. Employees can then redeem the value online or in stores, depending on the type of voucher or card.

What are their origins? Vouchers were first introduced in the UK in the early 1970s, created with the specific aim of motivating employees with an alternative to cash.

Where can employers get more information and advice on motivation vouchers? The VA is the trade body for motivation vouchers (visit or call 0870 2416445). The organisation can provide employers with information about the different types of vouchers available and suppliers in the market.

Nuts and bolts

What are the costs? If employers buy vouchers direct from retailers, they should not pay more than face value. Depending on the number purchased at one time, some providers will offer discounts of around 5%-to-10% on the value of motivation vouchers.

What are the legal implications? There are no direct legal implications associated with motivation vouchers. However, age discrimination legislation deems the rewarding of long service of five years or more discriminatory unless justified, so employers should ensure they can provide adequate justification if using vouchers for this purpose.

What are the tax issues? Non-cash motivation vouchers are taxed as a benefit in kind, so are liable for national insurance and income tax.

What is the annual spend on motivation vouchers? According to the VA, the UK voucher market is worth £3.2bn. The business-to-business sector is worth 45% of that.

Which motivation vouchers providers have the biggest market share? No figures are available to show exact market share, but major players in the market include Grass Roots, Kingfisher Gift Vouchers, Capital Incentives, P&MM Motivation, Sodexo, John Lewis Direct and House of Fraser.

Which motivation vouchers providers increased their market share the most over the past year? Although there are no official statistics, the market is growing. Most providers have reported steady demand during the past year, with increasing awareness in the business-to-business market.