Imagine that you have just given each of the top performers in your department a debit card worth $1,000 as a thank-you for a job well done. Now, imagine that you ask those same people one year later what they purchased with the card. Think they will remember?

Probably not, says Jim Feldman, chief solutions officer at Chicago-based marketing agency James Feldman Associates Inc. “Most people won't recall. Maybe they paid their electric bill, or put gas in the car, or bought groceries.”

The prevalence of debit card incentives should come as no surprise to anyone familiar with these awards. In fact, according to The Incentive Federation's May 2005 survey of nearly 250 incentive users, these cards ranked as the most popular choice for sales and nonsales employee awards. Fully 59 percent of respondents reported using gift certificates, gift cards, or debit cards for their sales-based incentive programs, while 62 percent reported using the cards for nonsales awards.

Despite their exponential growth, these awards may not be motivating your employees to the extent that you think they are. Here are a few facts to consider before embarking on a debit-card incentive program.

Too Close to Cash?

Debit cards are often affiliated with a credit-card brand such as American Express, Visa, or MasterCard, and can be loaded with a specific dollar amount and used at stores that accept that type of card. They can be issued in the recipient's name via the company's group account and accumulate value as an individual's achievement in the program progresses.

In other words, they're flexible, just like cash. But because of their similarity to cash, some incentive pros question their value as a motivator: “We have built an entire industry on the premise that cash is not a reward, and that is exactly what a debit card is,” says Feldman. “It is cash delivered in a more palatable package. Why not just give [the employee] a check and forget about it?”

The problem with cash — and thus, debit cards — is that they are not effective ways to recognize staff. “What employees grumble most about over lunch is the lack of recognition at the company,” he says, “and cash is not recognition.”

Like cash, debit cards run the risk of being viewed as compensation, and therefore can be seen as an entitlement, adds Scott Siewert, divisional vice president of sales for Atlanta-based USMotivation. “The last thing you want in an incentive program is for your employees to think they are entitled to the award just for showing up to work.”

Little Trophy Value

A top-brand home entertainment system comes with a perceived value to the recipients — and it will trigger memories of the company and the hard work put in to achieve the award. It's just not the same if recipients spend their award earnings on groceries, gas, or bills.

To combat this, many debit card programs allow companies to “filter” the cards, which prevents award winners from using them at gas stations, supermarkets, and any other retail outlets that the employer chooses. But this approach does not prevent recipients from making multiple small purchases with the card at approved retail stores rather than buying a single significant item with a greater perceived value.

“The truth is, nothing prevents you from going into Banana Republic and buying a pair of socks as opposed to a cashmere sweater with the card,” says MaryAnne Kanacki, CMP, vice president of The Westfield Group, a meetings-management company based in Summit, N.J. She notes that in that case, the recipient probably would not remember or value the purchase as much as if he or she were to buy something of higher value.

Another big part of trophy value is sharing the achievement with coworkers, family, and friends. With debit-card programs, recipients are less likely to boast about their achievements to peers — a key element in reinforcing the value of the program, says Siewert. “It is much more socially acceptable to brag about your plasma TV than it is to brag about the $2,000 you earned on a debit card.”

Taxable Reward

A common misconception about debit cards is that they are taxed in the same way as merchandise awards. The truth is, recipients are taxed for the full value of the card, just as if it were part of their income. This differs from merchandise award programs, where recipients are only required to pay taxes on the net tangible value of the merchandise.

For example, in a merchandise incentive program, when an award winner selects a piece of merchandise for $100, various charges such as administrative costs, shipping and handling, and state sales tax can make up 30 percent to 40 percent of that $100 value. When the company issues a 1099 for that award, the recipient will only be taxed on the $60 or $70 net worth of the merchandise. In contrast, the recipient of a $100 debit card will be taxed on the full dollar value of the award.

One way that companies can counter this issue is by allocating additional funds to cover tax obligations for recipients up front. For example, a company might provide employees with $120 for a $100 debit card to cover the taxes on the award. This alleviates the tax responsibility for recipients, but it also requires a larger investment by the company.

Unused Cards: Money Down the Drain

It's almost impossible to spend the balance of a debit card to the last cent. So what happens to the “breakage,” or unused portion of a debit card balance? “With debit cards, breakage almost never goes to the sponsoring company,” says Arnold Light, CTC, founder and president of The Light Group, White Plains, N.Y. “If the value on the card is not used up, it usually goes to the card company that is managing the program for the client.” One reason for this, says Light, is that with debit cards, companies usually pay for the cards up front.

However, it is a good idea to inquire about breakage policies with card issuers before implementing a debit card program to find out if unused funds can be returned once the program is over. Just be ready to state your case. “This is how the card companies make their money, so it can be a tough negotiating issue,” says Light. “But we always return unused funds to the client — even with debit-card programs.”

What about the winner who loses the card or puts it in his wallet and forgets to redeem it? It's a concern that Andrea Gold can relate to, both as a giver of stored-value cards and a frequent recipient of them. As president of Gold Stars Speakers Bureau, Tucson, she often uses gift cards for retail stores, shopping malls, and restaurants as recognition gifts for her employees. “My real concern is that I have no way of knowing if the cards I purchased are being used,” she says. “I wonder if I am just throwing my money away.”

Some more sophisticated debit-card incentive programs allow managers to track spending on the card and issue updates to recipients similar to an online bank account. However, many companies do not invest in a program at this level, making it hard to know if the rewards are being redeemed.

Cash With Complications

While plastic is sometimes viewed as the easiest way to make a purchase, debit cards can come with complications. Most retailers do not have the capability to inform users of their remaining balance at the time of a purchase. Instead, recipients are instructed to call a toll-free number (usually located on the back of the card) or to register the card online and log on to learn their balance.

“It can be hard to keep track of,” notes Gold. “I write down my purchases on a sheet of paper that I keep with the card, but that is hard to do on the run.”

Then there is the cost. In addition to the administrative costs to set up the program, most cards have startup fees of several dollars per card.

Even filtered cards present their share of hurdles. A card that is too limited can lead to recipient dissatisfaction, but a very long list of participating retailers may result in embarrassing declines at the register if the approved list of vendors is not updated accurately.

Sometimes using the card at approved retail stores can also present problems, notes Mike Parrottino, vice president of channel sales for Hewlett-Packard, Castle Rock, Colo. Parrottino manages a group of eight channel partners who do billions of dollars in business for HP each year, and he works with those partners to develop incentive programs for HP's sales reps. “We've done debit-card programs with our partners and resellers in the past,” he says. “One negative point of feedback I've heard from recipients was that some vendors don't always accept the card. What they thought was going to be an easy transaction wasn't.”

While Parrottino is not currently running any debit card programs for his team, he believes they have a place in incentive programs as long as they are easy to administer and can augment the overall goals and objectives of the program. “You have to analyze your business objectives thoroughly before jumping into any type of incentive program, whether it is with travel, merchandise, debit cards, or even cash.”

Doing It Right

Five steps to a successful debit-card incentive program

  1. Communication. Communication. Communication.

    Just because debit-card programs may be easy to implement does not mean that they will run themselves. Make sure that all eligible staff members are invested in the program up front by explaining the goals and objectives clearly, and ensuring that everyone knows how the awards will be delivered. This can be done via a kickoff meeting with management presenting the program, via a companywide newsletter, and/or through the company's intranet. Make sure that winners receive recognition for their efforts by keeping supervisors in the loop about wins in their department. Continually market and promote the program internally to keep the excitement level and participation high.

  2. Don't Get Stuck With Expired Cards.

    Ask questions about the card before you issue it to save everyone a lot of hassles. Find out if the card expires or decreases in value over time. Some cards will deduct a nominal fee each year; others never expire. In addition, it is important to find out if a recipient will be able to use the card to buy things over the Internet or if the card is only redeemable in brick-and-mortar stores.

  3. Steer Clear of ATMs.

    Many debit-card programs allow the company to authorize the card to be redeemed for cash at an ATM. Most incentive pros warn against this option, as it monetizes the award and can further diminish the trophy value of the program.

  4. Filter Carefully.

    Consider a filtered card that prohibits recipients from using the debit card to purchase low-value items such as groceries and gas or to pay bills. However, make sure that an up-to-date list of approved retailers is distributed to participants at the start of the program and is available online.

  5. Make It Memorable.

    Presentation goes a long way in incentive programs, and debit cards are no exception. Package the card to reflect the theme of the program, or have your company logo put on the face of the card. Present the cards to recipients in front of their peers at a special awards dinner, or accompanied by a personal letter from the company's CEO.

MaryAnne Kanacki, CMP, of Summit, N.J.-based The Westfield Group, suggests including a special gift with the debit card to make the award more special. “We did a recognition program for a client where people were individually recognized at the end of the year with a $2,000 filtered debit card and a piece of crystal from Tiffany's with their name on it,” she says. “I can't tell you how much that personalized gift meant to those recipients. They just loved it.”

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