How U.S. Regulations Impact Rewards & Recognition ProgramsFebruary 1, 2018

February 1, 2018

How U.S. Regulations Impact Rewards & Recognition Programs

VanDyke,Melissa-IRF-1-147x147Melissa Van Dyke has been president of the Incentive Research Foundation for more than six years, during which time she has helped triple the organization’s research and education footprint. The IRF funds and promotes research to advance the science and enhance the awareness and appropriate application of motivation and incentives in business and industry globally. Contact her at:

A new study by the Incentive Research Foundation examines how high awareness among U.S. program owners regarding the U.S. regulatory environment’s requirements for non-cash reward and recognition programs does not always translate into deep knowledge of their implications. Insurance and financial services firms, in particular, struggle to develop a deep understanding of these regulations and vary on their practices for compliance.

The IRF’s new report, “U.S. Federal Regulations and Non-Cash Awards,” offers an overview of how major federal regulations are currently impacting non-cash reward and recognition programs. The study explores program owners’ awareness and knowledge of these regulations and discusses how program owners are adjusting their programs to achieve or maintain compliance with these regulations.

The “U.S. Federal Regulations and Non-Cash Awards” study is based on data gathered from 419 decision-makers for non-cash rewards programs. The research examined program owners’ understanding of the regulatory environment generally as well as in relation to six key regulations (DOL Fiduciary Rule, 274j, OSHA, FLSA, Fair Market Value, and Sweepstakes/Lottery). While the respondents represented a cross-section of U.S. business, nearly a quarter of respondents (106) worked in the insurance and financial services industry.

Respondents Are Aware and Confident, But Could Be More Knowledgeable

Overall, respondents indicated that they were highly aware of regulatory and tax codes, but less knowledgeable about how to comply with them. Not surprisingly, representatives from insurance and financial services firms indicated that they feel a little less confident than the general market in addressing the regulations — specifically regarding a detailed understanding of the requirements and the consequences of non-compliance. However, they are relatively confident they have identified the key impacting regulations and have adequate measures in place to remain compliant.

Certain regulations impacted this level of knowledge. The Department of Labor Fiduciary Rule states:
Companies may not create or continue to use incentives that allow financial advisors to act in a manner that is not in the best interest of their client, and they must disclose all conflicts of interest, including the use of such incentives.

Only half of insurance and financial services firms said they were completely clear on what they needed to do to comply with the Department of Labor Fiduciary Rule as it relates to non-cash award programs. An additional 45 percent were somewhat clear, but still find gray in the interpretation.

Shared Responsibility for Compliance

Compliance is a big job. While more than half of insurance and financial services respondents said they had ultimate responsibility to understand the regulations, more than a third shared this responsibility with their audit, compliance and/or legal team.

The measures in place to remain compliant take many forms. More than 50 percent of U.S. firms have clearly identified stakeholders. Additionally, over half have regular reviews by an audit or compliance team, while half also said they have an explicit, documented policy to guide design, approval and execution of non-cash reward programs. Conversely, less than half review material changes to their programs.

Changing Times

Reward and recognition programs are not static — 86 percent of U.S. businesses make some revision to their program on an annual basis. In 2017, 93 percent of insurance and financial services firms made at least one change to program design based on the regulatory environment. Half of U.S. businesses made eight or more changes for this reason.

The regulatory environment plays two roles in program design — it provides a potential impetus for revision of the program, and it informs the design and approval of those revisions. The most common design revisions are to general program design (87 percent of businesses) or program communications (85 percent). Insurance and financial services firms were more likely than non-financial institutions to make a number of changes to address regulations including:

  • A complete redesign of the program.
  • Changing the rewards mix.
  • Changing the name or description of the program.
  • Editing the language used to communicate the rules.
  • Changing cash rewards to non-cash.
  • Redesign of group incentive travel events.
  • Increased program budgets to pay for these changes.
  • Outright elimination of a program.
  • Shift rewards from gift cards to other non-cash rewards.
  • Shift rewards from cash or non-cash to other intangible rewards.
  • Increased scrutiny on program outcomes, including ROI.
  • Increased staff support to accommodate regulatory environment.

Over half of insurance and financial services firms have changed the entire design of their incentives and rewards program in response to regulations, for example moving the focus of the program from rewarding sales to recognizing customer service. The greatest change, however, is in products, with 57 percent of insurance and financial services firms reporting changing the products included in their sales incentive programs. Over half have also changed the language they use to describe the rules of their program and the name or description of the program.

Insurance and financial services firms are also scrutinizing their programs at a higher rate, with over half saying the program statistics and accounting are under greater review. Close to half of insurance and financial services firms have changed who is eligible to receive awards in their program, shifted from cash programs to non-cash programs, or changed the design of their group travel incentive event, all in response to regulations.

A Case for Investment

Not surprisingly, over half of U.S. businesses have increased the dollars invested into programs to accommodate changes and close to half have increased staff support. We anticipate more and more resources will continue to be dedicated to understanding and accommodating regulatory requirements for non-cash awards programs, especially as these regulations themselves continue their refinement. The pace of these changes will only quicken as the program owners begin to move from not only aware, but deeply knowledgeable.   I&FMM

IRF Regulations Slide for OP-Ed.pptx

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