Running voucher-based motivation schemes in a recession

Voucher-based motivation schemes can help to maintain staff morale in difficult economic times but there are pitfalls, says Nicola Sullivan

The primary focus of many reward managers in recent months has been on performance bonuses, as they react to criticism that annual incentives drive inappropriate short-term behaviours. The resultant rush to thinking about longer-term performance rewards may cause some to overlook a very short-term incentive scheme that is just the ticket in a recession: instant reward schemes.

These can be an effective way of motivating staff because managers can observe positive behaviour as it happens, says Francis Goss, head of commercial operations, incentives and recognition at Grass Roots. For example, vouchers can be presented to high-achieving employees at a team meeting or in front of colleagues to recognise their performance, promoting desired behaviours more widely.

Andrew Johnson, director general of the UK Gift Card and Voucher Association, says: “Gift cards and vouchers continue to be popular choices, largely because they empower the recipient to choose their own gift.”

But such schemes can run into difficulties, as was illustrated a few months ago when some big-name high-street retailers went into administration, throwing some gift voucher schemes into confusion. The collapse of Woolworths, which owned Flogistics, provider of Kingfisher Gift Vouchers, was alarming news for many employers, employees and retail voucher providers. Although Woolworths continued to accept vouchers until its last stores closed in January, other participating retailers B&Q and Comet stopped taking vouchers in December.

To ensure employers and employees did not lose out in these cases, other voucher providers advised employers to ensure staff spent any vouchers they held while stores continued to accept them. But this did not help employers that had bought vouchers in bulk well before the retailers collapsed. Some voucher providers found themselves acting as creditors, approaching administrators for money back on behalf of themselves and customers for vouchers that were already, or were about to become, redundant.

One voucher provider, which did not want to be named, decided to replace unredeemed Kingfisher gift vouchers bought by its customers in November with vouchers of the same value from other retailers. It also submitted a claim to Woolworths’ administrators Deloitte on behalf of customers who had bought vouchers through it.

Declining confidence

As confidence in the long-term security and stability of many high-street retailers has declined, employers have had to reassure staff of the value of their motivation plans. Selecting a provider may also be more of a challenge as firms seek to ensure staff will be able to use the vouchers they are given.

Multi-store vouchers may be seen as a safer alternative to single-store vouchers. “Any multi-store gift voucher is almost recession-proof because if you can redeem it in 150 stores, the chances of 150 stores going under is remote,” says Goss.

Before selecting a provider, employers must decide whether they want to offer paper or electronic vouchers. Paper vouchers are typically the cheapest option, as well as being much easier to distribute. They also give staff a tangible benefit. But if paper vouchers are lost, they can be difficult to replace and are much more likely to be claimed fraudulently. Also, if employers buy paper vouchers in bulk, storing them in the workplace could pose a security risk.

Through electronic voucher schemes, staff are issued with gift cards pre-loaded with points that can be redeemed against products in selected stores. Alternatively, employers can pay points into individual online accounts for staff to spend on products from an online catalogue, for example. Such arrangements give organisations greater scope to incorporate their branding into the scheme, for example by including their logo on the website or gift cards.

Trophy value

But electronic schemes may not always be the best option, especially if employers derive value from physically presenting awards to staff, says Goss. “You would expect to see an increase in the online mechanic at the moment and people moving away from paper. But the thing about the online mechanic is there is no trophy value element to it. We are finding organisations still like to be able to give something to staff.”

A key aim for most employers is to minimise the cost of setting up such a scheme. Some may be tempted to buy vouchers directly from retailers to cut out the middle man and obtain larger discounts for staff.

But Jon Bryant, business development director at JLT Online Benefits, says employers may find it hard to negotiate deals directly because they will not have a long-standing relationship with the retailer. Providers that procure vouchers for a number of employers are likely to have more clout and buying power. They may also be able to secure better discounts at certain times of the year. “An employer might be able to get 5% off at Sainsbury’s for the year, but they might be able to negotiate an extra 15% for February because this is when the retailer really needs the income,” says Bryant.

Third-party providers may also be able to offer additional services related to the delivery, administration and security of a voucher-based scheme. John Sylvester, director of motivation at P&MM, says: “The discount levels might be slightly lower because there is another party in the delivery chain. But employers can ask us to deliver directly to employees, which can save time and energy on administration and also storage. These vouchers are, in effect, the same as cash, so security is a key aspect of that whole process as well.”

Benefits abuse

As cost margins continue to be squeezed, employers are likely to become more concerned about the abuse of voucher schemes undermining their offering. Although providers cannot offer complete protection against benefits abuse, some online schemes enable employers to track which staff are using the perk and identify whether unauthorised people have accessed it.

If employers can overcome such challenges, it can be relatively easy to set up and run a scheme. Andy Philpott, marketing director at Accor Services, says: “The actual mechanics of a voucher scheme are incredibly easy. The hardest thing is getting right back to basics. What is the objective of the scheme? How does it fit into the business?” Employers must also ensure schemes are transparent in terms of what staff are rewarded for, says Goss. If a scheme is perceived as unfair or currying favour with certain employees, it can demotivate staff and damage morale. For this reason, it should not be used as a substitute for pay reviews or cuts to contractual benefits.

Correctly deployed, voucher-based motivation schemes can help employers maintain staff morale and encourage the day-to-day behaviours needed to help organisations weather the current economic storm.

Case study: Severn Trent taps into vouchers

Severn Trent Water has used motivational vouchers since 1994 to reward staff who have played an important role in resolving crisis situations, such as last year’s floods in Gloucestershire.

Severn Trent’s scheme, which has been provided by Capital Incentives and Motivation since 1996, is available to 6,000 staff. Vouchers are also given to reward those who work at weekends and deal with minor water bursts, as well as to call centre agents.

The scheme typically offers employees between £25 and £250 worth of vouchers, depending on the stature of their achievement. The company also pays the tax on vouchers, which can be redeemed against items at a variety of retailers.

Chris Blakesley, pay and benefits manager at Severn Trent Water, says: “”Most large organisations think the only way of rewarding people is to give them a pay rise, which is a long bureaucratic process and it is not instant.

“Vouchers are something managers can give out at a local level to say to an employee ‘what you have done is fantastic and has made a real difference’.”

Tips for running voucher-based motivation scheme:

  • Employers must choose carefully which vouchers they offer to staff, bearing in mind the current increased risk of retailers going into administration.
  • Voucher-based motivation schemes must be transparent, fair and not seen to curry favour with certain individuals. Such schemes should not be used as a substitute for pay reviews.
  • Instant reward remains important during a recession to recognise employees’ day-to-day positive behaviours.
  • Employers may be able to obtain higher levels of discount by purchasing vouchers directly from retailers, but voucher providers can offer additional support with the communication, administration and security of a scheme.
  • Employers that are setting up a voucher-based motivation scheme for staff should have a clear understanding of what they want it to achieve.