Performance Incentives and Structure

The current approach to structuring of concession payments is only just beginning to

incorporate the use incentive structures to direct behaviour. Figure 5.9 of Chapter 5 noted that less than 15% of the lease concessions examined used pricing incentives, with there being no incentives included in the licence concessions examined. Significant improvements in this area are possible in influencing both park manager and commercial operator activities.

§ Incentives to Maximise Concession Revenue

Under the current funding flows in Victoria, revenue to the park manager generated from concessions is returned to Consolidated Revenue (being the general revenue base of the Victorian Government which is used to fund total Government activities) rather than being directed for use by the park manager (with this requirement being legislated). This

arrangement operates as a disincentive for the maximisation of concession revenue (and has also encouraged the use of alternative approaches to revenue classification which enable revenue retention). Retention of revenue and, particularly, local retention would logically be a driver of behaviour for both the operator and the park manager in creating a positive cycle from revenue to better services and facilities to positive public attitude and back to increased revenue (Queensland Parks and Wildlife Service 2000, p.3). Conversely, while it has been suggested that the ‘best practice’ for the distribution of concession revenue is “100% revenue retention by the Agency” (Parks and Wildlife Commission, Northern Territory 1999), there are inherent dangers associated with this approach. Potentially, the original objective for permitting licensed activities may be lost in the quest to generate revenue and lead to the hijacking of staff and other resources away from core park management activity along with a loss of focus on maintenance of natural values.

The USA has partially addressed this issue by establishing a system where all revenue earned from concessions is placed in an account established by Treasury, but with these funds then being available for use by the NPS, with 20% available to support activities throughout the total park network and 80% available for use in the park which generated the revenue. Whilst an improvement on the current practice in Victoria, this also suffers from the danger of the Government of the day reducing total funding commitment to the parks as a result of the increased external revenue generation, thereby resulting in no net increase in funding available.

The current Victorian practice (which mirrors that used in a number of other jurisdictions) is a legislative requirement and, therefore, needs to be considered an external constraint in

developing the commercial business model. However, it is an area which does require refinement in the future.

It should also be noted that the park manager, as an arm of Government, is constrained in its ability to change prices for services offered within the park. Unlike private businesses, it is a requirement of Victorian government policy that government agencies must be able to prove to the community that all charges and especially new charges are fair, necessary and equitable and any increases in charges are justifiable or in line with the consumer price index

(ANZECC report prepared by Queensland Parks and Wildlife Service 2000, p.7).

This pricing constraint has the potential to encourage park managers to use commercial operators to provide services rather than the manager assuming this responsibility, as the commercial operator would not be constrained by this requirement. This may result in commercial operators providing some services (e.g. environmental tours) which do not have the same level of conservation protection.

While the constraint placed by this Government policy is not unreasonable, further flexibility is required to ensure it does not result in inappropriate behaviour.

§ Incentives to Direct Behaviour

The current approach to the use of incentives (financial or otherwise) to drive operator (and visitor) behaviour appears restricted in Victoria and the other jurisdictions examined (as evaluated in Chapter 5). For simple concessions, the ‘flat-fee’ approach dominants. For complex concessions differing financial incentive structures are used, but these are designed to drive revenue maximisation rather than any other required behaviour (such as conservation or visitor reduction). However, a number of studies already completed have indicated that the use of incentives to link commercial operations with other park objectives (including

conservation) can operate as an effective management practice. (See Parks and Wildlife Commission, Northern Territory 1999, Queensland Parks and Wildlife Service 2000, Young et al. 1996). These reports identify ‘best practice’ approaches as including:

· Establishing fees that reflect the Agency objective(s) for concessions (whether it is cost recovery, risk management or profit).

· Using exclusive or semi-exclusive concession arrangements to limit change to the environment or the recreational setting.

· Using concession arrangements as a risk management tool when legally compliant liability, indemnity, operational and competency provisions are included in documentation.

· Establishing good relationships with and controls over all types of commercial operators, and ensuring that all conditions of permits, leases and other agreements are adequate and fulfilled.

· The use of the incentives to collect good visitor data.

· Ensuring that core business is not over-ridden by commercial interests. While increased standard of service and facilities will often be a desired outcome of a concession

arrangement, such services and facilities should not be out of keeping with the desired management setting of the protected area, or incompatible with the area’s environmental needs.

The implementation of a commercial business model should include the development of appropriate incentive arrangements to drive commercial operator performance and behaviour. While the nature of the final incentive structure should be determined based on the objectives and environmental setting of a specific concession, a number of possible approaches to consider have been identified by the researcher based on a synthesis of the literature review, interviewee comment and the concession file review along with the researcher experience of incentive approaches in other industries (e.g. the franchise industry). Possible approaches include:

· Concession fee scales which provide a sharing of additional revenue for achievements beyond that expected (eg turnover or profit levels).

· Concession fee scales which include incentives for the achievement of defined outcomes in service provision, environmental achievements, customer satisfaction levels, scope of service etc.

· Financial penalties for failure to achieve defined targets (although such an approach need sot be used carefully as it can represent a negative incentive if inappropriately applied). · Definition of levels of expenditure required in specific areas (eg marketing or interpretive

· Subsidisation of specific activities required which would not normally form part of a commercial activity (e.g. use of green power which currently is available at a cost premium).

· Joint revenue or profit sharing arrangements covering both operator and park manager revenues (e.g. a sharing of entrance fee revenue where it exceeds a defined target).

6.3.9 Linking Commercial Operations to Conservation Objectives – Enhancing