Entertainment allowance

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

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

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).

Examples of Entertainment allowance

• Employee Entertainment Allowance: This is an allowance given to employees to cover the costs of hosting or attending social events and activities, such as dinners, entertainment, or sporting events. This allowance may be used to foster team building and establish relationships with customers and vendors.
• Sales Entertainment Allowance: This is an allowance given to sales staff to cover the costs of entertaining and networking with potential customers. This allowance can be used to cover meals, tickets to events, and other activities that could help close sales.

Limitations of Entertainment allowance

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, however, there are some limitations associated with it. These include:

• The entertainment allowance is subject to taxation, which can significantly reduce its value.
• It must be used for specific purposes and not just for personal enjoyment. For example, it can only be used to pay for meals, drinks, and entertainment related to business activities.
• Companies are expected to adhere to a certain level of acceptable behavior when spending the entertainment allowance. This may include preventing excessive alcohol consumption, ensuring that all members of the team are included in activities, and avoiding activities that are inappropriate for the workplace.
• There may be restrictions on how and where the entertainment allowance is spent. For example, it may not be used to pay for entertainment outside of a certain geographic area or to pay for activities that are not related to business.
• Entertainment allowance is limited in size and duration, and cannot be used to cover expenses that exceed the amount allotted.
• Companies may require that employees provide receipts for all entertainment expenses. This helps to ensure that the entertainment allowance is being used appropriately.

Other approaches related to Entertainment allowance

Other approaches include:

• Cash bonuses - Companies may provide employees with cash bonuses for meeting certain goals or for displaying exemplary performance. These bonuses can be used to cover entertainment expenses, such as meals or tickets to shows or events.
• Gift cards - Companies may provide employees or customers with gift cards to use for entertainment. Gift cards may be redeemable only at certain venues or for certain types of entertainment.
• Merchandise - Companies may provide employees with merchandise such as electronics, tickets to events, or items related to their job or company.
• Travel allowance - Companies may provide employees with a travel allowance to cover the costs of travel related to work or entertainment. This could include flights, hotels, meals, and other related expenses.

In summary, entertainment allowance is a budget allocated to motivate and reward employees or customers. Other approaches related to this allowance can include cash bonuses, gift cards, merchandise, and travel allowance.

Entertainment allowance — recommended articles

Indirect compensation — Year-end bonus — Extrinsic reward — Income stream — Push money — Coupon book — Types of market segmentation — Service cost — Job sharing

References

• Angeles, Vhona-Nanette P., Saludo, Aimeren Krystelle M., Virtus, Ludy Mae R., Win Maw Tun (2015), Job satisfaction and performance level off employees of ajinomoto Philippines corporation lucena branch "Laguna Business and Accountancy Journal", Vol. 1, No.2, pp. 61-103.
• Artz B. (2010), Fringe benefits and job satisfaction, "International Journal of Manpower", Vol. 31 Issue: 6, pp. 626-644.
• Donavan T. D., Brown J. T.,Mowe C. J. (2004), Internal Benefits of Service-Worker Customer Orientation: Job Satisfaction, Commitment, and Organizational Citizenship Behaviors, "Journal of Marketing", Vol. 68, pp.128-146.
• Donnelly P. J., Holton R. (1962), A Note on Product Differentiation and Entertainment Expense Allowances in the United States, "The Journal of Industrial Economics ", Vol. 10, No. 2, pp. 134-138.

Author: Wojciech Szabla