Were you surprised?
THE Australian Government is currently going through an exercise in self-flagellation! Having spent two or more years resisting the establishment of a Royal Commission into the banking and finance sectors it was finally compelled to do so several months ago and what is being revealed has surprised and, to be frank, disgusted many both in the government and the country.
But what has also been revealed, although attracting far less, in fact no publicity is the use and abuse to which incentives have been put. Two things in particular have become very clear, the first is that incentives have been proved to have been extremely effective in producing outstanding results, many to the detriment of banking customers. The second is that the companies using them - many of them large, long established financial sector organisations - have little idea on how to do so properly.
Many of the incentive programs that have been revealed by the investigators are basic and have had some very unfortunate consequences. There have also been revelations that the programs do not adequately reflect the purposes for which they have been designed, although to use the term “design” might be totally inappropriate because many seem to have little design input apart from “do this, get that”. Several years ago I was asked by one of the ‘big four’ banks to assess an incentive program that was then in use by one of its divisions. It was a fairly straightforward program; branch managers who achieved their targets would be part of a group travel reward (and conference) to a five-star destination. The program was “open” (i.e. everyone who achieved their target would, in theory, receive the reward) but the bank limited the numbers to 100- of which 20 were“hanger son ”( people who would participate in the reward, by virtue of their position rather than achievement of targets) without informing the participants.
Because the number of successful participants each year exceeded the 80 positions available on the travel reward those who did receive the reward were selected at random! They weren’t even the highest achievers! This resulted in a number of very dissatisfied (and demotivated) participants who had worked hard to achieve a reward but received nothing.
This could so very easily have been resolved by converting it to a “closed” program and informing all participants that the top 80 branch managers would achieve the reward. This would not only eliminate any reason for dissatisfaction which could be aimed at the bank but would have the effect of increasing competition and possibly even results.
The Royal Commission has revealed that most if not all finance companies use incentives to drive their sales efforts and that the incentive rewards earned by the salespeople are not divulged to their customers. This in itself is a contravention of the rules set by the industry’s own peak body. It’s also highly unethical.
But we’re not here to discuss ethics. The effectiveness of the incentives used, basic though they may be, has been revealed as beyond question. The rewards in many cases were monetary bonuses and ex-gratia payments rather than merchandise or travel rewards but it seems that all were equally effective. However the crude efforts of the companies within the finance sector could have been tempered with more innovative design elements which could have generated even better results as well as prompting the less able amongst their sales staff to achieve better results. And it should be remembered that the cost of the rewards is covered by the incremental increase in revenue obtained.
The finance sector is just the tip of the iceberg. The Royal Commission has revealed how effective incentives are in achieving results (unfortunately, as it turns out, in many cases under investigation to the detriment of the customer) and the profitability of the various banks and finance companies suggest they are certainly more than covering their costs.
It’s the time of year when company ceos will again be in the news; a few of them earning bonuses which some observers feel are undeserved and unrelated to the performance of their companies or the share prices. But who determines whether, when and on what a bonus is paid. It’s rare that senior managers’ salary packages actually decrease in consequence of a bad financial result. And yet it is perfectly feasible to produce an incentive program for senior staff that provides generous remuneration in response to innovation and outstanding results, but which also provides the impetus by means of salary decreases for bad results which cannot be reasonably explained or justified.
Incentives are an undervalued and underrated form of both motivation and promotion. Those who already use them are well aware of the benefits.