On the surface, the news from our 2008 Incentive Trends Survey looks pretty positive. Per-qualifier spend is up a healthy 7 percent this year over last, to $3,659, and budgets are up for 40 percent of respondents.

But there's another side to the story. Budgets are the same or less for 53 percent of readers. And the write-in responses accompanying our survey point to the fact that even a healthy increase in budgets cannot compensate for the skyrocketing cost of hotel, air, and destination management companies, along with the shrinking value of the U.S. dollar for overseas programs.

“A 7 percent budget increase is barely going to cover your increased costs,” says Bob Dawson, 2008 research chairman for the Incentive Research Foundation and director of The Business Group, an incentive ROI consulting company in Rocklin, Calif. The reality, he says, is that planners are walking a fine line between getting the best value for their dollar and motivating participants who are being asked to do more today than even two or three years ago.

This budget crunch is not likely to get better any time soon. Domestic hotel rates have risen nearly 6 percent over last year, according to PKF Consulting, with hot markets such as New York and Miami posting double-digit gains. The U.S. dollar, already at a historic low against the euro at the end of 2006, sank another 12 percent this year. At press time, one euro cost travelers $1.53. Neither situation is expected to improve in 2008.

Planners will feel the pinch even more because of the growing influence of procurement, says Julie Carroll, vice president, industry relations, BCD Meetings & Incentives, St. Louis. “Now that larger companies have procurement departments in place, they are expecting planners to keep budgets flat, even though they know that air and hotel have increased.”

The survey shows that readers are allocating their budgets the same as last year, with the largest portion going to hotel (36 percent), followed by air at about 25 percent. Jerry McGee, president of travel and event management at Ambassadors International, Newport Beach, Calif., reports that in some instances, he has seen plane tickets creeping up toward 30 percent of per-qualifier spend.

“Airfare is becoming a more significant part of the budget,” he says, noting that particularly for business-class travel, schedules and prices are becoming more of a burden. “We always looked at dates and rates for hotels when putting together an incentive program; now we look at dates and rates for airlines as well.”

How Far Is Too Far?

Faced with rising costs all around, readers say that they are most likely to cut back on on-site gifts, choose less expensive destinations, or shorten the trip. That probably explains why the survey shows more off-the-beaten-path destinations cropping up among readers' choices.

The problem is, winners are starting to notice. “Most incentive winners are sophisticated travelers, so if you take them to a five-star destination one year and then a four-star destination the next, they will notice,” McGee says. Cutting back on the frills on-site will have the same result, notes IRF's Dawson, who overheard participants at a recent incentive program cocktail reception bemoan the lack of golf on this year's itinerary. “It's really hard for the planner to say, ‘Look, the company didn't want to fund it,’” he notes.

Bob Vitagliano, executive director, iSITE Foundation, couldn't agree more. “How do you tell people that we're having tough times and have to cut back on the incentive program when we're rewarding CEOs with ridiculous compensation packages?” he says. “We're getting to the point where we're pushing employees too far and expecting them to make too much of a sacrifice without enough rewards.”

This has put planners in a tough spot, he says. “I recall things being this tight only once before: during the recession of the early '70s.”