Wednesday, June 23, 2010

Rewards for Flying Coach

Long before the economy foundered, Energizer Battery Company was looking for ways to cut its travel costs. After all, two-thirds of the company’s 5,000 to 6,000 employees travel for work, many of them overseas.

Its solution was an incentive program: it pays employees to fly coach, instead of business class, when traveling overseas.

“What we do for all locations except for Asia is we share the difference in the ticket price for up to $2,000,” said Doris Lee Middleton, the human resources and travel services manager at Energizer. “For Asia, it’s $3,000.”

Now, with the weak economy forcing them to make tough budget decisions, other travel managers are trying variations of the incentive program.

“Companies are always looking for creative ways to get more value out of their travel programs,” said Michael Steiner, executive vice president of Ovation Corporate Travel, one of the nation’s largest travel management companies.

Mr. Steiner said such programs were not foolproof. They can expose employers to higher taxes, and can sometimes create divisions between traveling employees and those who journey only from the photocopier to their desks. Nevertheless, in cases like Energizer’s, Ms. Middleton said, the benefits to a company’s bottom line “are substantial.” The company would not reveal the size of its travel budget nor how much it saves by using the travel incentives.

Incentives to travel cheaply can come in many forms, not just savings-sharing programs like Energizer’s. “We’ve had clients that have put in nonmonetary, internal incentives,” said Will Tate, senior vice president at Management Alternatives Inc., a travel procurement consulting firm based in Plano, Tex.

Because getting employees to comply with travel policy ultimately saves money, many companies offer employees points if they follow policy. “If you book according to the air travel policy, you get 10 points,” Mr. Tate said. “If you book a hotel within the policy, you get 10 points. A rental car — you get 10 points. If you do all three, you get a bonus of 20 points.” The points are then redeemable from a rewards catalog that may offer everything from coffee makers to luxury vacations.

There are other variations on incentives, too, that feel less rewarding to employees but nevertheless reduce companies’ travel costs. One is allowing employees to fly business class if they book a flight on a less expensive route, but requiring them to fly coach on a more expensive itinerary.

“A clever corporate travel manager,” Mr. Tate said, “will go to an airline and say, ‘What’s the best deal you can give me if we go through a different hub?’ ” Often, airlines offer companies a reduced rate for traveling through less popular locations. Then, Mr. Tate said, “a presentation is made to employees: ‘If you are willing to connect through Cleveland or Denver, you can fly business class. If not, you can fly coach.’ ”

A few companies do another variation on travel incentives — reimbursing employees who use their own points to take a trip. “As an employee, it allows you to monetize your frequent-flier miles,” Mr. Steiner of Ovation Corporate Travel said.

While many of the incentive programs can result in substantial financial rewards for the companies that use them, these incentives can incur costs of their own, both for employees and employers. “If the employee receives cash or the equivalent of cash, that’s taxable income,” said Anthony Burke, a spokesman for the Internal Revenue Service. Likewise, employers are required to pay payroll taxes of 7.65 percent on the additional money they give out in cash rewards. Tax ramifications for noncash prizes “depend on the facts and circumstances of each case,” Mr. Burke said.

Tax consequences are one reason that Stream Global Services of Wellesley, Mass., adopted its own form of a rewards program last summer. Stream, which runs call centers around the world, rewards high-level employees for flying coach by donating “half of the difference” in air fare “to a charity of their choice, on their behalf,” said Roger Lavallee, senior manager of global procurement. “The traveler gets the tax credit for the donation,” but incurs no income tax. Stream also does not face taxes on the incentive payments.

Incentive programs can create some administrative hassles. The company has to review every itinerary and decide whether it’s applicable, Ms. Middleton said. “Then an auditor looks at it, and then it finally goes to the payroll department.” In fact, Ms. Middleton said she believed that “more companies aren’t taking advantage of this because they don’t have the process in place to easily administer it.”

Energizer has received no complaints about its program from its nontraveling employees, she said. But Mr. Tate said that “some H.R. departments have put a stop to this because they’re creating an unequal incentive opportunity for employees who travel.”

People who don’t travel, he added, do not have those opportunities. “It’s an H.R. challenge.”

Similarly, incentive programs can sometimes defeat themselves by inadvertently encouraging unnecessary travel. “If the take-home is $1,000 or $1,500 in cash, you better believe that as an employee I’m going to find a way to go to Europe three or four times,” Mr. Tate said.

Asked whether some employees might exploit the company’s largess, Ms. Middleton responded, “Energizer trusts its colleagues to do the right thing.” She added, though, “That said, we do have audit controls in place to make sure there’s no abuse of the system.”

She said she frequently encouraged other travel managers to try incentives. It is a method of cutting travel costs that builds loyalty rather than dissension among staff, Ms. Middleton said. “Energizer has found that this is a very successful program.”

This article, written by LIZ GALST was published June 21, 2010 in The New York Times.

At Lorraine Travel, we have deals on some Business & First Class tickets for certain airlines that would present significant savings to coporations without the hassle of the incentive programs suggested in the article above.

One other idea I'd propose to companies that are considering incentives to reward economy class air travel would be to permit travelers to say in luxury hotels. After all, the incremental cost of a luxury hotel stay over an economy class hotel would be must less than the difference between coach & business class on most business trips. What's more,this would be an incentive to the traveler without any tax implications or tracking issues to the corporation. To whet one's appetite for this cost savings measure we invite you to visit our tempting collection of the best luxury hotels here.

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