Incentive program designs are changing rapidly due to program owners' understanding of U.S. regulatory and tax requirements and their perceived need to make accommodations to comply with regulations. This finding comes from the Incentive Research Foundation’s 2019 U.S. Federal Regulations and Non-Cash Awards study.

For the study, the IRF used a survey to generate 398 responses from decision-makers for non-cash rewards programs representing a cross-section of U.S. businesses with $5 million or more in annual revenue. The four business sectors reporting were Automotive / Manufacturing, Pharmaceutical / Health Care, Technology/ Telecommunications and Financial Services.

“High awareness and knowledge of regulatory and tax requirements strongly correlated with greater rates of change in program design across all sectors among firms of all sizes,” says IRF Vice President Andy Schwarz. “However, when presented with specific scenarios, respondents frequently identified legal and regulatory issues where none existed, raising the question of whether the high rate of change in program design is always necessary to comply with U.S. regulatory and tax requirements.”

The study found that program owners’ overall confidence in the ability to identify regulatory and tax requirements was high, with 77 percent of respondents feeling “very confident.” Knowledge of regulatory and tax requirements was relatively higher for Financial Services firms and Technology/ Telecommunications firms—and relatively low for the Automotive / Manufacturing sector.

To comply with regulatory or tax requirements, the study found 39 percent of firms eliminated at least one program. Compliance practices are more fully developed at Technology / Telecommunications firms and Financial Services firms, while Pharmaceutical / Health Care firms do not yet have fully developed and implemented compliance practices.

Almost half of firms (47 percent) shifted spending from cash incentives to non-cash rewards to comply with regulatory and tax requirements. Also, senior executives and finance departments are more likely to be involved in the review and approval of changes to non-cash rewards and programs, and firms in a growth phase allocate more resources to ensure non-cash reward programs are in compliance.