Entertainment allowance

Entertainment allowance
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Entertainment allowance is a specific budget that a company earmarks in order to achieve specific goals in the area of human resources or sales. There are two forms of entertainment allowance:

  • namely employees’ benefits
  • sales entertainment expenditures.

Both forms of allowances may either partially or fully cover the employee’s expenses for entertainment purposes and these include a wide amount of activities, such as cinema tickets, organized sightseeing during business trips, parties, business trips and dinners. In general, it covers many entertaining activities that may in some way affect company’s, employee’s or customers’ frame of mind or their level of satisfaction, and which aim at strengthening the bond with the company. The entertainment allowance however has specific features depending on its form, and requires specific explanation for each of the two groups, namely sales’ entertainment allowances and employees’ benefits.

Employee’s Entertainment Allowance aka Entertainment Fringe Benefits[edit]

This form of allowance refers to the specific benefits, which task is to motivate and encourage an employee to stay with a company, by increasing his or satisfaction and strengthening the bond with the company (Artz 2010, pp. 2-3). The entertainment expenditure allowances differ per company, and can cover all kinds of activities, which need to be good for the image of the company. For instance, some companies attach a lot of importance to the health and well-being of their employees and would therefore choose to cover the expenses of a sport or a health club subscription as a form of entertainment allowance. Other companies might prefer to destine a specific amount per year to this purpose, and let their employees decide what they want to allot the money to. In most of the cases, companies provide their employees with the list of products, activities and services that the money can be earmarked to.

Sales Entertainment Allowance[edit]

Sales entertainment allowance is frequently used as a strong marketing tool directed towards relationship building with company customers and business clients or partners. It is the available amount that can be used by an employee for the entertainment purposes of the company clients. Sales managers or executives use the allowances during business meetings, while discussing the condition of particular transaction with their clients. As such, entertainment allowance is a cost of sales, which can sometimes be negatively perceived as institutionalized bribery, in which entertainment is provided to consumers by suppliers, as they initially cover the costs of the entertainment activity, but in the end the cost is inevitably paid for by the final consumers of particular goods and services (Donnelly & Holton, 1962, p. 134).

Furthermore, Donnelly and Holton (1962) describe the relations between usage of entertainment allowance and a variety of products in a company offer. Their study examined entertainment policies of twelve different companies. The companies were assigned into three categories based on the products variety offered by the companies.

  • First group was composed of companies with large amount of available products
  • Second with slight diversity of products
  • Third with highly specific, raw material producers

The result of the research demonstrates negative relation of product diversification and entertainment allowance spending. The sales staff in the third category of companies, which offer raw materials, use over 50% of their budget on entertainment allowance. This situation is caused by repeatability of orders which happens less frequently in comparison to the other companies. However, even though an order frequency is smaller, the volume of a transaction is significantly higher. Thus, it is essential for sales managers and executives to build strong relations and good communications with their clients. In addition, interviews with sales force illustrated that limiting the entertainment allowance would strongly affect effectiveness and revenues of the company, which in turn could lead to decreased turnover, less-worth market shares or a company could even go bankrupt. In companies with a larger variety of products this type of expense plays a less significant role and interviews showed that, company could lose part of its shares but would most likely survive on the market nonetheless. (Donnelly & Holton, 1962, p. 135-137).


Author: Wojciech Szabla