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Schwab is betting that money is more memorable than Maui.

Reputational Risks? The IRF Rebuts Schwab’s Logic for Cutting Incentive Travel

The Incentive Research Foundation responds to a Wall Street Journal article on Charles Schwab Corp.’s decision to scale back incentive travel programs.

The Wall Street Journal has reported that Charles Schwab Corp. is making changes to its sales incentive program, specifically, dropping Chairman’s Club travel rewards in favor of a cash bonus and an additional week of vacation. The financial services firm has been running all-expenses-paid trips to, among other places, Hawaii and the Florida Keys for more than 30 years, but the firm announced in an email that it was discontinuing the reward because of “significant reputational risks” and also indicated that the move may save money. Schwab is bucking the trend on employee rewards; according to studies by the Incentive Research Foundation, 65 percent of firms worldwide are expanding their incentive travel programs.

In response to The Wall Street Journal article, the IRF has submitted a letter to the editor clarifying the benefits of noncash rewards as a motivational tool and suggesting that “reputational risks” may cut both ways: Employees are less likely to discuss cash awards than travel with coworkers and potential recruits, and are more likely to spend cash rewards on paying bills than memorable experiences or self-care trips. This can result in decreased loyalty and lower motivation, contributing to a less desirable workplace for current and potential employees. A reduction in reward travel also decreases networking opportunities for employees, especially between departments. Schwab’s Chairman’s Club trips rewarded employees from all areas of the firm, including call centers and operational support, not just salespeople.

Schwab’s email also stated that “our regulators are more closely examining how award programs might skew client service or outcomes,” a reference to the new SEC Regulation Best Interest rules that come into effect in 2020. The IRF has previously surveyed planners’ understanding of incentive program implications for tax and compliance regulations, (take this quiz to test your understanding) and in its response to the article, the IRF’s Chief Academic Advisor Allan Schweyer rebuts the assertion that a well-designed incentive program could fall foul of the RBI rule.

Read Schweyer’s letter to the editor in full.

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