Posh Trips for Jobs Well-done are Fading Away
Barbara De Lollis, USA TODAY, 2/26/2009 (excerpted)
Editor's Note: On March 6, Travel Mole reported that the U. S. Travel Association has launched a campaign intended to “push back against the political demonization of business meetings and events.” Entitled “Meetings Mean Business,” the campaign is a coalition of USTA and other travel industry associations, including Meetings Professional International and National Business Travel Association. For more information, visit their website www.meetingsmeanbusiness.com.
For nearly 30 years, independent insurance agency owner Bob McAfee of Massillon, Ohio, earned free vacations for himself and his wife by hitting sales goals set by his larger underwriters.
The trips were used to reward his agency's top salesmen, and improve his business. He views the all-expense-paid vacations to Switzerland, Mexico, England and Hawaii as a key motivator and part of compensation.
"It was really great for my salespeople," who earn around $75,000 to $125,000 a year, McAfee says. "They really did try to write the necessary new business to qualify for these trips."
But with the down economy and ongoing public backlash against excessive spending by corporate giants, the lavish incentive trip — and, increasingly, even once-routine meetings and conferences — are in trouble. Bailout recipients AIG, Wells Fargo, Chrysler and General Motors all scrapped most 2009 incentive trips, behavior that's increasingly influencing healthy companies.
They're reacting to media coverage of extravagant incentive trips and other gatherings, and outrage expressed by members of Congress. Rep. Elijah Cummings, D-Md., has been a vocal critic of bailed-out companies spending money on lavish gatherings at a time of rising joblessness and home foreclosures.
"Some of this stuff is just common sense," he says. "You can't have one hand out begging for money and the next thing you do is go on some junket, when the people whose money you're using are losing their homes."
The problem is that all types of corporate gatherings are being labeled "junkets," and companies are cutting back to avoid getting a bad rap, travel leaders say.
Incentive trips, meetings and events account for 15% of all travel spending, which creates 2.4 million jobs, $240 billion in spending and $39 billion in tax revenue, according to the U.S. Travel Association. Incentive trips — generally, upscale vacations given to high achievers who met certain goals — alone generate about $13 billion a year, according to the Incentive Research Foundation. Motivational meetings and special events generate $64 billion a year.
Paul Hebert, whose firm i2i helps companies devise motivational strategies, expects incentive travel programs will return around 2011, once scrutiny subsides, but, "The days of having Celine Dion singing at your final night banquet may be over."
The deeper impact will affect the larger category of executive brainstorming meetings and other retreats that are often held at luxury hotels, he says.
Trips have said thanks to many
Since the days of the traveling salesman, companies have rewarded top performers with extras to recognize their hard work and thank spouses who put up with their long hours.
The trips aren't just for six-figure salespeople, says Brenda Anderson, CEO of Site (formerly the Society of Incentive & Travel Executives).
For example, Ford Motor rewarded dealership mechanics who finished master technician training by sending them to Marriott's CasaMagna resort in Cancun in January, says Robert Parker, a Ford spokesman. Dealers paid for the training, but Ford paid the vacation tab, he says.
Some incentive trips are first-class affairs in exotic places such as Hong Kong, a mega-resort in Mexico or a beautiful hotel in Hawaii so they'll be memorable and motivational, says Mike Fegley, a senior executive with InterContinental Hotels.
The industry even has awards — Site's Crystal Awards — to recognize standout trips. An IBM event won last year for a Beatlemania beach party in Bermuda, where 1,800 top achievers and their guests found the beach at the luxury Fairmont Southampton transformed into a psychedelic dream world, with 80 lit daisies up to 18 feet tall planted in the sand, a Beatles tribute band and fireworks timed to Hey Jude .
Today, the climate for such elaborate trips has changed. IBM this spring is giving the 2008 top achievers cash bonuses instead of vacations, says Clint Roswell, an IBM spokesman.
The practice came under scrutiny in September, when Congress found out that AIG spent $443,000 — including $20,000 on spa treatments — for about 70 top-selling insurance agents and a few AIG executives at a luxury California resort. It came just days after the federal government seized control of AIG to avert a bankruptcy filing.
AIG's CEO had to explain the trip to Congress. The Bush administration described it as "despicable." And as a result, AIG scrapped over $80 million in incentive trips and other meetings through this year.
As the economy continues to flail, public opinion of trips keeps falling. Wells Fargo — one of nine banks bailed out — canceled a 12-day event in Las Vegas this month following media coverage and criticism.
General Motors has now canceled most of its dealer incentive trips, says Peter Ternes, a GM spokesman. Chrysler eliminated its dealer incentive trips and its 2009 recognition business meeting, says Carrie McElwee, a Chrysler spokeswoman. And citing difficult market conditions for the entire auto industry, Toyota suspended incentive trips this year, says Zoe Zeigler, a Toyota spokeswoman.
The industry that handles the planning of incentive trips, corporate meetings and events reports business is down by about 35%, Anderson says.
Travel industry feels the pain
With travel vital to communities across the USA, the U.S. Travel Association is mounting a major offensive to quell criticism from federal lawmakers.
The travel group formed an unusual coalition with seven other associations to "reframe the debate," says Geoff Freeman of the USTA.
"The fight is not with meetings, events and travel," he says. "The problem is with irresponsibility. The grandstanding has scared companies of all stripes and colors, whether they've taken money from the federal government or not."
The industry's also worried about legislative attempts to curb travel and entertainment. On Tuesday, Sen. John Kerry, D-Mass., introduced legislation to ban recipients of the Troubled Asset Relief Program (TARP) for two years from hosting, sponsoring or paying for entertainment or holiday events.
As the fight continues on Capitol Hill, many remain caught in the cross hairs:
•Upscale hotels. Incentives, meetings and events typically generate 40% of a typical Marriott-brand hotel's volume, says Arne Sorenson, Marriott's chief financial officer. This year, Marriott's group business is down 12% due to the vilification of meetings. He says "thousands" of employees have lost their jobs.
•Las Vegas. This year, Vegas expects to lose at least $20 million worth of trips and meetings from Fortune 500 clients, says Rossi Ralenkotter, CEO of the Las Vegas Convention and Visitors Authority.
This month, State Farm canceled the sales convention it holds there every three years, says Jeff McCollum, a company spokesman, wiping out revenue that would've come from 17,000 agents, plus spouses. Visitors who come with business groups typically spend $1,200 at casinos, vs. $700 spent by those who pay their own way, Ralenkotter says.
Goldman Sachs, which has taken $10 billion from the government, canceled its annual technology conference at Mandalay Bay Resort & Casino because of the new climate, says Gia Maron, a company spokeswoman. She declined to say if it saved money, since Goldman paid cancellation fees, then rebooked the event at the San Francisco Marriott.
• Small businesses. Cutbacks hurt restaurants, florists, gift shops and other businesses that rely on corporate gatherings. Silvano Zanetti, who owns Café Cipriani in Irving, Texas, has long relied on free-spending corporate groups and conventioneers. But business is down 40% to 50% because the local Four Seasons, Marriott and Omni are emptier now, he says. "We hope we will survive," he says.
•Workers. Canceling trips can hurt morale and raise turnover, Hebert says, adding that they are huge motivators largely because spouses want to go. "There's a huge psychological pressure for them to hit their numbers to go every year," he says.
Those who are still going
Despite fear of public perceptions, many healthy companies continue to offer incentive trips — something that Congress isn't criticizing. Cummings says that companies that aren't using taxpayer dollars "should be allowed to carry on business as they normally do."
At software giant CA, exotic vacations have long been used to attract and reward top sales talent. This year's upcoming six-day trip to top resorts in New Zealand and Australia will be CA's 29th-consecutive trip. CA has even run ads in The Wall Street Journal featuring trip photos to entice sales professionals to send résumés.
Bill Hughes, a CA executive, credits the sales-incentive trips with helping CA retain all but one of its 150 best sales performers.
"One of the things you want to do in this economy is make sure your sales force is hitting on all cylinders," Hughes says. "That's what's going to distinguish yourself from your competitors."
BMW North America doesn't plan to tinker with its incentive travel program for dealers, general managers and salespeople because the company believes they pay for themselves, says Wayne Orchowski, BMW's vice president of sales.
His division regularly recognizes BMW's top 10% of dealers. They've taken exotic trips, such as an African safari and a trip to China to see the Great Wall. They've also experienced what money can't easily buy, such as having Tony Bennett serenade them at a moonlit dinner.
It's not only about recognition, Orchowski says. On trips, people spend a good deal of time networking and discussing best practices. And they're exposed to experiences that will help them better relate to BMW's well-heeled clients, he says.
"Times are tough," Orchowski says. "But you have to be prudent where you make your cuts. You want to keep cultivating the soil to make sure things keep blossoming."