Buyer’s guide to motivation vouchers 2010

Focus on facts

What are motivation vouchers?

They are paper-based or electronic gifts cards with a monetary value, which employers can use to incentivise staff. Shopping vouchers can be redeemed at a single store or at multiple retailers, and employers can also offer travel or experience vouchers.

What are their origins?

Gift vouchers, in the form of book tokens, were introduced in the 1930s, but it was not until the 1970s that they became a motivational tool in the workplace. They reached a peak in the 1980s when Capital Bonds, the first multi-store gift voucher to market, were launched. Vouchers have since taken a central role in many workplace recognition and reward schemes.

Where can employers get more information and advice?

The UK Gift Card Voucher Association (UKGCVA) is the trade body for gift cards and vouchers. Its phone number is 08702 416445.

Nuts and bolts

What are the costs involved?

Motivation vouchers are available in a variety of denominations, generally starting at £5. Discounts of up to 5% are available when vouchers are bought in bulk, with paper-based vouchers generating higher discounts than electronic gift cards.

What are the legal implications?

There are no legal implications associated with motivation vouchers.

What are the tax issues?

Motivation vouchers lost their tax-free status in the late 1990s and are now regarded as a benefit-in-kind from a tax perspective, which means that they are subject to tax and national insurance.

In practice

What is the annual spend on motivation vouchers?

Almost £4 billion is spent on gift cards and vouchers each year, according to the latest figures from the UKGCVA. Sales to employers make up about 45% of this – about £1.6 billion – of which motivation vouchers account for two-thirds.

Which motivation voucher providers have increased their market share the most?

Although the UKGCVA collates information from its members, it does not disclose market share information. As voucher sales spread between the high-street stores and agencies selling vouchers on their behalf, it is not easy to determine who has the market share of the motivation voucher industry.

Which voucher providers have the biggest market share?

Some of the biggest players are: Edenred, Grass Roots, Love2reward, One4all, P&MM, Projectlink Motivation, Sodexo, SVM and The Voucher Shop, as well as large retailers including Debenhams, House of Fraser, John Lewis, Marks & Spencer, New Look, Sainsbury’s, Tesco and Waitrose.

Particularly in tough economic times, reward vouchers can be a greater employee motivator than cash, says Jennifer Paterson, and there are various methods to deliver the benefit

In the current economic climate, employers are recognising the cost advantages of replacing monetary compensation with non-cash but tangible incentives to motivate and engage employees.

This is all the more apparent as the winter holiday season approaches. Vouchers are an excellent option for staff Christmas presents, and can also be very practical at this expensive time of year, reducing costs during a period of heavy spending.

Colin Hodgson, sales director at Edenred (Incentives and Motivation), says: “Many organisations will say thank you to their employees at Christmas and give them £25, £50 or £100 per employee.”

Motivation vouchers can be used in various ways to reward a range of behaviours, including: employee loyalty, long service, special achievements and performance, or simply as a thank you. David Butler, general manager at National Garden Gift Vouchers, says: “Employers are looking for things that engage employees more holistically rather than with financial rewards.”

Voucher sales to employers now account for 45% of the UK’s total voucher market of £4 billion, with a spend of £1.6 billion in 2009. Andrew Johnson, director general of the UK Gift Card and Voucher Association (UKGCVA), says: “The lion’s share of that 45% is about motivating staff.”

One of the first decisions for employers is what type of motivation voucher to offer. Shopping vouchers can be spent on a wide range of everyday and treat items at retailers such as Comet, Asda, Debenhams and Argos. Multistore and single-store vouchers are available.

Experience days popular

Other options include travel, theatre or restaurant vouchers. Experience days, such as a trip to a spa or sky diving, are also popular.

Vouchers are available as paper certificates or electronic gift cards, but there has been a shift in popularity towards the latter over the past year. David Fleming, business development manager at Fresh Rewards, says: “In America, the [electronic] gift card is huge and our market is going that way due to their accessibility and acceptability in retail outlets. They have also become more popular by employers offering them through reward schemes rather than giving salary increases.”

There are three main types of electronic gift card: closed loop, open loop and restricted loop. Closed-loop cards are redeemable at one specific retailer. Open-loop cards use either the Mastercard or Visa payment network, and are accepted at multiple retailers. Restricted-use cards can be used at a select group of retailers.

Electronic cards offer many advantages over their paper-based counterparts. For example, they can be branded with an organisation’s name and logo, and can be reloaded and reused, which can reduce administration. Staff can also receive gift cards without an assigned value which can be activated and loaded remotely after they are handed out. Mark Towler, head of business incentives at House of Fraser, says: “Employers can reduce storage, distribution and postage costs if they use gift cards that can be sent out with no value assigned.

Customers benefit from not incurring secure delivery charges which would be required for gift vouchers or conventional gift cards, which carry value and are essentially ‘live’ currency.” Some electronic vouchers are linked to an online reward account, so staff can check their balance when they like, and decide whether to spend the credit immediately or save it to use on a reward of greater value at a later date. Denis Hurª, chief executive officer of The First Club, says: “Offering a digital reward is a very effective way to motivate employees.”

Use of mobile technology

Mobile phone technology is also advancing the way vouchers are distributed to staff, making them more immediate and convenient. Julie Rosehill, a founder and sales director of The Voucher Shop, says: “I see the future in mobile technology. Once retailers have the ability to scan the barcodes from the phone, this will replace paper vouchers. Individuals can already get Comet vouchers delivered to their phones and also Orange Wednesdays [offering two-for-one cinema tickets]. Obviously, this is not here completely yet, but I do see this replacing the paper and plastic vouchers.”

There is also an extra element of security with this type of voucher. Stuart Selby, marketing director at Grass Roots, says: “Coupons or vouchers delivered to handset technology is here. They are not susceptible to spam filters or plug-ins to download compared to an emailed voucher. However, there are not yet enough smart phone handsets across the population to consider a national promotion.”

But despite these technological advances, there are many reasons why paper vouchers are still popular. Francis Goss, head of commercial operations for reward services at Grass Roots, says: “The most obvious reason is the tangible nature of paper vouchers. A team leader in a call centre giving on-the-spot rewards to team members can hand out paper vouchers with a reward card. The positive experience of opening a card with vouchers inside is more memorable. In terms of accessibility, the paper voucher is the most versatile.”

Because most large organisations do not want to order vouchers in bulk and then have to count them into individual envelopes for staff, providers now offer an allocation fulfilment service. They will count the vouchers into individual envelopes with a presentation wallet that can be branded with employers’ corporate logos and messages.

Busiest season for vouchers

The voucher industry is now approaching its busiest season. According to UKGCVA’s 2008 research, Gift cards and vouchers in the UK – summary, Christmas and birthdays are the most popular gift card-giving occasions. Voucher presentations at an expensive time of year offer employers several advantages, such as having a greater impact than simply giving employees a salary increase or bonus payment that might easily be spent on mundane household expenses and quickly forgotten.

“A lot of research has been conducted that demonstrates vouchers or cards are far more successful as a reward medium than cash,” says Edenred’s Hodgson. “For example, if an employer is running an employee incentive scheme, it is very difficult to promote the fact it has paid an individual a bonus in cash but it could easily promote the fact that they have received £500 worth of [motivation] vouchers.”

Employees also view vouchers as an aspirational benefit, particularly in a tough economic climate. “Gift cards and vouchers are being used more frequently to compensate for the lack of salary increases or bonus payments,” says House of Fraser’s Towler. “These are benefits that are not classed as permanent which help to deliver competitive advantage to businesses in modern times. Recognising that gift cards and vouchers offer better value for money than cash is a key element of consideration.”

Typically, when a cash reward is handed out, it ends up being sucked up into necessities such as household bills, but a voucher can be used to buy a gift that fits into the more traditional ‘treat’ definition of a reward. Paul Byrne, UK sales director at One4all, says: “When an employer pays staff money, it often gets lost in the overall salary package and they will not feel much better off. But because a voucher is separate from the employee’s pay packet, they will feel able to spend the reward on themselves, often on goods that they might not otherwise have felt able to afford – so the benefit is targeted.”

Aligning these rewards and incentives with an organisation’s business objectives is also a way to ensure their purpose is fulfilled. Towler adds: “They should be viewed as responsible management, working to ensure the long-term commercial success of the business and, in the process, laying the foundations for a secure and happy workforce.”

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However they are offered, motivation vouchers offer employees the opportunity to buy precisely what they want, adding a lot more value to their benefits package than a simple salary bump.

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