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Appeal of Gift Cards Expiring

September 30, 2009
Related Topics: Corporate Culture, Recognition, Motivating Employees, Featured Article, Compensation, Benefits
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Gift cards have long been a staple of employee recognition programs. But then came high-profile bankruptcies of well-known retailers and criticism of the profits that vendors make from gift-card “breakage”—the term for cards that are sold but not used. Skeptics are now asking if it’s time to retire the cards from rewards and recognition merchandise choices.

Whether it’s due to bankruptcies, breakage or other factors, gift cards’ prominence in employee retention programs has dropped in recent years. In a 2008 WorldatWork study of employee retention practices, only 51 percent of companies used gift certificates for product purchases, compared with 63 percent in 2002.

Bankruptcies at Lillian Vernon, The Sharper Image and more recently Circuit City and Linens ’n Things have made companies and recognition program vendors wary of using gift cards. When Linens ’n Things and The Sharper Image filed for federal bankruptcy protection, consumers were stuck with $100 million in worthless gift cards, according to research and advisory services firm TowerGroup.

“Five years ago they were the wave of the future, but that has cooled,” says David Sturt, executive vice president at OC Tanner, a $400 million employee retention program vendor in Salt Lake City. “Now they’re part of the overall mix of what companies provide.”

Companies aren’t using gift cards because their employees aren’t—and once the gift card expiration date passes, that unspent money changes from a liability to income, adding to a vendor’s bottom line, says Peter Hart, president of Rideau Recognition Solutions, a Montreal-based vendor. Hart puts gift-card breakage as high as 18 percent. “If it’s a higher-value certificate that’ll be lower, and if it’s a lower value it’ll be higher, but it’s built into their model,” he says.

Rubbish, says Derek Irvine, chief marketing officer at Globoforce, a Dublin, Ireland-based vendor. He puts breakage in the low single digits. The real problem, Irvine says, is lack of choice. Employees may opt not to use a card at all if their only other choice is redeeming it at an online catalog that offers nothing appealing to them.

The way around that, Irvine says, is to offer clients plenty of merchandise and vouchers that never expire—so even if some items in a vendor’s array of merchandise go away, the employee can always get something else.

Workforce Management, September 14, 2009, p. 28 -- Subscribe Now!

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