Incentive - April 2008 - (Page 49) THE INCENTIVE MERCHANDISE BUYER’S HANDBOOK CHAPTER 2 Plan the Strategy; Set the Budget • Pick 10—Every tenth sale earns an entry in a sweepstakes drawing for merchandise prizes. • Hit-and-Win or Buy-In—The top 50 achievers get the award; those who reach at least 50 percent of their goal can pay a buy-in amount for the home theater system. TAX CONSIDERATIONS The IRS presents some special tax considerations, depending on the type of incentive program and the value of the merchandise awards earned. As defined by the IRS, an “employee achievement award” is an item of “tangible personal property”—no travel, event tickets, or securities—that is transferred by an employer to an employee for length of service or safety and awarded with a meaningful presentation. It cannot be disguised compensation or a substitute for a cash bonus. In general, an employer can deduct the cost of employee achievement awards given to the same employee up to $400 per year. If the award is given under a “qualified” written plan that does not discriminate in favor of highly compensated employees, that deduction increases to $1,600 per employee. But the average cost per employee for awards given in the qualified plans cannot exceed $400 each year. Under these rules, the award is deductible for the employer and not taxable as income to the employee. Of course, exclusions and exceptions do apply in regard to IRS regulations. Awards of “nominal value”—usually up to $50—are excluded from the total yearly calculations for those established written programs. An award does not fall within the excludable service achievement award category if it is received within the employee’s first five years of employment, or if the employee received a similar award during the current year or any of the prior four years. An award item is not considered a OPEN-ENDED RULE STRUCTURES A few examples: • Basic—Participants earn a predetermined number of points for every sale they make. • Qualified—Participants earn points only after reaching a minimum goal. • Retroactive—Similar to a qualified program, but the payoff includes credit for sales leading to the minimum goal. • Escalating—The more you sell, the more you earn. • Bid-and-Make—Participants set their own goals (subject to management approval) and are rewarded for achieving them. • Team Bonus—Participants receive bonus awards if everyone on their team makes the goal. JUMP-START STRATEGIES Programs may need a boost during their duration, particularly if you are promoting a secondary goal like training or service. These spurts can be built in during the beginning, middle, or end of the program. A few ways to do this: • Fast Start—Every sale in the first two weeks earns double points. • Sprint—Earn bonus points for selling a certain product within a specific time frame. PLANNING • Fast Finish—Sales made during the last two weeks of the program earn double or triple points. WISE SECONDARY GOALS Incentive programs often have more than one goal. In addition to finding ways to operate more efficiently and save costs, an employee suggestion program, let’s say, can empower a staff and improve retention. A consumer promotion can both increase sales and awareness of a particular cause. You can incorporate secondary goals into the rules structure in several ways, including: • Beyond the Sale—Participants earn extra points for prospecting, going the extra service mile, finding a new revenue stream. • Win Two Ways—Participants earn points for each sale, and the top 50 earn additional awards. • On-Target Bonuses—Bonus points are awarded for every quarter that participants meet their goal. Open vs. Closed Incentive Programs Figure out which program type works best for your audience. Bear in mind that you don’t have to lock in on one or the other. Tiered programs provide for a predetermined number of winners at the top, while the lower rungs are open to anyone who meets his or her goals. OPEN-ENDED All participants win when they achieve a predetermined performance level. There are usually no limits to the number of points or awards that can be earned. With more people targeted, you stand a greater effort and results—motivating even the underachievers. But budgeting is more difficult since you can’t know for sure how many winners and awards you will be dealing with. Increased sales, though, can usually pay for rewards. CLOSED-ENDED Limits the number of winners to only the top-tier or a specified number of qualifiers. Easier to budget since you’ll know the exact number of winners and awards you will need. However, this program type can alienate performers who just miss the mark, or those who consistently fall short but do improve on their past results. Repeat winners may dominate, which can be demotivating for the rest of the group, and challenging for planners who have to come up with ever more impressive awards. April 2008 | SPECIAL SECTION 49
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