There will always be strong demand for high performing producers. Incentive plans, when designed correctly, can help attract, motivate and reward the employees who are key to driving the bank’s success.
It may seem straightforward, but if this were an easy and predictable process, banks would spend much less time and energy reviewing and modifying their plans each year. In reality, it’s not easy, but it is critical to create an incentive program that aligns with current business priorities while also considering the factors that motivate your top sales staff.
Keep this list handy because while summer is just beginning, the fact is, it won’t be long before it’s time to recalibrate your plans for 2016.
- Know Where You’re Going. Establishing guiding principles for the incentive plan is often an underappreciated step, but it aligns design decisions with the important operating goals of the bank. Be clear about exactly what you are trying to accomplish. Enhance revenue growth? Sell to new customers or deepen current relationships, or both? Perhaps you simply want to push your best performers to operate at an even higher level than in the past, or for strategic business reasons, you want this same group to shift focus toward a new market. Revisiting these principles will help establish and reinforce the underlying basis for the incentive plan.
- Determine the Plan Type. There is often considerable deliberation about the type of plan to deploy. Will a goal-based team plan provide your sales staff with a collaborative environment to motivate them to meet their sales objectives or will an individual production plan work better? How about a hybrid of the two? Identifying the approach that fits your culture and operating unit best will drive the right behavior.
- Simplify the Measures. Performance metrics will directly influence behavior. Should a commercial relationship manager be compensated for gathering deposits, increasing loan growth, referring mortgage customers, cross-selling wealth services, and doing so with the highest level of customer service? Well, yes. But should they be compensated for each of those measures or will individual measures for each slice unwittingly shift focus from the top priority goal? It is important to identify the most direct drivers of business success, while recognizing the potential impact of trying to cover too much ground.
- Calibrate Payout with Production. Understand the historical levels of production for your sales staff and the required output for the coming year, and align these expectations with appropriate payout opportunities. Are you willing to pay for breakthrough performance and if so, how much? What level of production are you not willing to pay for? And do these hurdles align with the revenue required to meet the business unit’s financial goals?
- Test for Risk. Do your own stress-testing to ensure the design will generally meet risk review tolerances before the plan is evaluated for risk. Ask the following questions: How much leverage is in the plan? Are the measures balanced and not placing too much emphasis in one area? Is there proper administrative and governance rigor? Does payout frequency align with the product life horizon? Are holdbacks or deferrals necessary in order to provide a means to adjust awards based on quality?
- Ensure Differentiation. The conservative nature of the industry often leads to final plan decisions that simply don’t provide for differentiated incentives, meaning there is not enough “pay daylight” between top and average performers. Providing meaningful differentiation is one of the principles behind well designed incentive plans—it will ensure your producers who lead the pack will be well compensated and highly motivated.
The potential impact to the bank if incentive plans underperform can be the difference between meeting and missing targets. Running through this checklist may help to identify enhancements that can optimize your plans and create a path to success.