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Strategy

How Businesses Can Save on Travel by Incentivizing Employees


by Dan Ruch

Companies spend $1.25 trillion on travel each year, but could reduce that number by incorporating Incentivized Behavioral Change.

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Travel and entertainment (T&E) is typically one of the largest controllable expense categories for a company. If there are issues with a company’s business travel expenses, the financial impact will quickly be evident. T&E is an important area to manage closely and can take a toll on any organizational budget, no matter how stringent a finance department is.

Pinpointing the issue of travel overspending can be difficult. Even after it’s been identified, finding a solution to mitigate overspending can be even more challenging. Policies and policy change play a big role in upgrading the way that any company runs their travel program, but leveraging incentives to drive changes in employee booking behavior will allow an organization to realize savings traditional cost cutting methods can’t deliver.

Business travel is inefficient

Globally, companies spend $1.25 trillion on corporate travel each year. It accounts for roughly 10 percent of an organization’s annual budget, and it’s all being spent by people who have no reason to be cost-sensitive because they’re not spending their own money. When travel expenses are being charged back to the company, employees have little reason to save.

Companies want their employees to make cost-sensitive travel decisions. Employees prioritize their own comfort, convenience, and brand loyalty. To put things into perspective, business travel is 66 percent more costly on a per trip basis than leisure travel. Normal shopping considerations just don’t apply to business travel spending. This misalignment creates tremendous financial waste.

The traditional approach to managing travel costs

Travel policies provide employees with guidelines for what can be spent on a business trip. No matter how strict or lenient a company’s travel policy is, travel spending presents several challenges that prevent policies from being completely effective in managing and promoting cost savings.

Travel expenses are difficult to forecast. It’s nearly impossible to know what trips will need to be taken or the volume of travel a company will see over a financial reporting period. Employee headcount and prior travel spend are often used to forecast T&E but rely on broad assumptions that trip expenses are identical from one employee to the next.

Two employees could spend the same amount on their trips, and one could reasonably be considered to have overspent, and the other to have spent carefully. Variability in travel prices due to destination, dates of travel, advanced booking, and market availability means that fixed spending guidelines are of limited use. There are numerous factors that can cause spending to be misaligned with policy spending caps.

Policies serve as guardrails for spending, and as long as employees are operating within policy, nobody asks questions. If an employee has diamond status with Delta and the Delta flight is in-policy, why would that employee ever choose to book the cheaper JetBlue flight? Because employees have no incentive to save they will continue to spend at the upper limits of policy. With the average business trip costing just over $1,000, even minute shifts in employee behavior can impact company finances in a dramatic way.

The hidden costs of a poor traveler experience

The financial implications that a corporate travel program has on a company’s P&L are obvious, but the effects that a travel program has on employee recruiting and retention are often overlooked. According to the GBTA, 79 percent of North American business travelers indicated that their business travel experience impacts their overall job satisfaction and 59 percent indicated that a company’s travel policy is an important factor when considering a new job.

Traditionally the response to high travel costs and overspending is to tighten policy by lowering spending caps and mandating additional processes and approvals. These inconveniences and pain points can weigh heavily on employees and create friction. Booking business travel then becomes a burden for employees.

As booking travel becomes increasingly restrictive, employees will seek to make the process more convenient even if it means booking through unapproved channels. This deviation from policy results in leaked spending and lack of booking and payment visibility. Leakage and visibility issues impede a company’s ability to capture data, analyze employee spending, and ensure contracts with preferred vendors and for negotiated rates are met. While the goal of tightening policy is to reduce costs, these issues actually prevent efforts to do so.

All these problems circle back to the point that the interests of the company (savings and compliance) are fundamentally misaligned with the interests of the employee (comfort, convenience, and brand loyalty). The solution to these issues is finding a way to align the interests of both parties. By doing so, an organization can reduce travel costs, improve employee satisfaction, and promote a long-term culture of cost-sensitivity.

Incentivized Behavioral Change reduces travel costs

Rooted in behavioral economics, Incentivized Behavioral Change is a way to influence decision-making using material rewards. By applying Incentivized Behavioral Change to their travel program, companies can turn the travel booking process into a positive, rewarding experience for employees. In turn, employees will find extraordinary, policy compliant ways to reduce travel spending and return tremendous value back to the organization.

Dynamic budgeting and understanding the correct value exchange are the two essential elements needed to successfully change behavior. Employees require an anchor that accurately reflects what they would have spent on a trip if they had no incentive to save and an incentive that is perceived to be more valuable than what they would be giving up.

Over time, this process recalibrates the decision criteria and can even change the culture in which employees function. By adopting this new way of thinking, companies can encourage employees towards more cost-sensitive saving behavior, such as advance booking for flights and downgrading from business to coach—even if policy would allow them to book a business class ticket a few days before their flight.

When employees are incentivized to spend thoughtfully, an organization can optimize the chances that the employee will make a favorable decision within the limits of policy or even go above and beyond what policy dictates in order to achieve extraordinary results.

Incentivized Behavioral Change is a pragmatic, positive, and adaptable form of employee engagement. Employees gain an ownership mentality, because they are able to share in the benefit of doing right by the company. This strategy improves on a restrictive, rules-based approach, and prevents companies from giving in to their employees’ convenience-based spending.

Sometimes dangling the carrot is more powerful than using the stick. When the right incentives are introduced into the decision-making process, what an employee receives for making a decision that is in the best interest of the company provides more personal value than what they would be giving up for changing their behavior. Incentivized Behavioral Change produces a win-win outcome: employees receive valuable rewards and companies realize tremendous savings on corporate travel.

Dan Ruch is the CEO of Rocketrip.