BEWARE THE INCENTIVE TRAP - CUNA Councils · New Member acquisition strategies. New Members 1,200...

BEWARE THE INCENTIVE TRAP

HOW TO BUILD AN INCENTIVE STRUCTURE THAT DRIVES GROWTH AND KEEPS

REGULATORS HAPPY

DISCUSSION TOPICS:

• Incentives and Motivation• Alignment with Strategy• Total Comp Considerations• Keep it Compliant• Coach to Incentives• Self-Assessment • Q&A

IS PAY A MOTIVATOR?

• Why do YOU work?• Why do you work

harder/smarter/faster/better?• Are your co workers motivated by the

same things?

SIZEGAS MILEAGE

STYLECOLOR

SATISFIERS

BROKEN RADIOBROKEN A/C

BROKEN WINDOWBROKEN HORN

DISSATISFIERS

MOTIVATOR FACTORS

ACHIEVEMENTRECOGNITION

THE WORK ITSELFRESPONSIBILITY

GROWTH/ADVANCEMENT

HYGIENE FACTORS

COMPANY POLICIESSUPERVISION

RELATIONSHIPSWORK CONDITIONS

SALARY, SAFETY, STATUS

HERZBERG’S MOTIVATIONAL THEORY

Critical Question to Answer:

Do we really need incentives, or can we accomplish our goals with good process and supervision?

MOTIVATIONAL THEORY

• Law of Effect

• Expectancy Theory

Law of Effect

– Behavior that is followed by positive consequence will tend to be repeated.

– Behavior that is followed by a negative consequence will decrease in frequency.

– How do you reward good performance or punish bad performance?

Expectancy Theory– Based on the Law of Effect– Motivation is the product of:

• Expectancy – Employees’ assessment of their ability to perform required job tasks.

• Instrumentality – Belief that performance will be rewarded by the organization.

• Valence – The value the employee attaches to the reward.

Expectancy

Employees’ assessment of their ability to perform required job tasks

– Are the objectives realistic?• Where do you set your thresholds?• What are the norms?

– Does the employee believe he/she has the ability to affect the results?

• Line-of-sight

– Does the employee have the job/vocational skills to achieve the objectives?

Instrumentality

Belief that performance will be rewarded by the organization

– Why would employees not believe that their performance will be rewarded?

Valence

The value the employee attaches to the reward

– Without good base compensation the value of the incentive will be minimized

– The motivational value of an incentive is directly related to the amount of the incentive potential.

Farmers & Hunters

• Paid for growth• Heavy SALES focus• Diff personality, motivation• Low base, high risk• MLO, BDO, Indirect Rep

• Paid for volume• Heavy SERVICE focus• Diff personality, motivation• High base, low risk• NA Rep, CLO, CC Rep

INCENTIVE STRUCTURE?

o Do we understand the primary motivator(s) of our employees?

o Do we really need to pay monetary incentives?

o Do our incentives reward good performance and decrease negative performance?

o Do employees expect to be successful in their roles?

o Do employees believe they will be recognized?

o Are employees motivated by the value of the rewards?

MOTIVATION QUESTIONS:

DISCUSSION TOPICS:


DON’T MAKE INCENTIVE DECISIONS IN A VACUUM

LINE OF SIGHT

Do I believe I can get there from here?

Can I see where you want me to go?

2017 CREDIT UNION SCORECARD

We Will Measure of SuccessBaseline

2015Baseline

2016 Min Goal Stretch Goal Weight

New Member acquisition strategies New Members 1,200 1,123 1,700 2,178 25%

Tailor our Services to our Community

Total “Active” Products and Services (Net Growth) 3,426 3,591 4,800 6,644 25%

Deliver a State-of-the-Art Eservices Experience

Percentage of members usingE-Services as their primary channel 55.2% 56.2% 57.6% 60.2% 20%

Create a robust and data-driven organization Loan Applications 6,989 6,374 7,220 7,508 20%

New Member acquisition strategies NPS 55.4 50.31 59.92 67.38 10%

100%

HOW IT ALL TIES TOGETHER

CREDIT UNION STRATEGY & GOALS

CREDIT UNION SCORECARD


CREDIT UNION SCORECARD

DEPARTMENT SCORECARD


DEPARTMENT SCORECARD

INDIVIUAL SCORECARD


INDIVIDUAL SCORECARD

REWARD(BASE + BONUS + INCENTIVE)

2017 BRANCH SCORECARD

We Will Measure of SuccessBaseline

2015Baseline

2016 Min Goal Stretch Goal Weight

New Member acquisition strategies New Members 400 353 500 778 25%

Tailor our Services to our Community

Total “Active” Products and Services (Net Growth) 1,126 1,591 1,600 2,244 25%

Deliver a State-of-the-Art Eservices Experience

Percentage of members usingE-Services as their primary channel 50.1% 51.9% 56.6% 59.2% 20%

Create a robust and data-driven organization Loan Applications 2,368 2,144 2,550 3,816 20%

Member Satisfaction strategies NPS 55.4 50.31 59.92 67.38 10%

100%

2017 FSR SCORECARD

Measure of SuccessMin Goal

Stretch Goal Weight Strategies to Attain Goals

New Members 335 521 25%

Total “Active” Products and Services (Net Growth) 1,072 1,503 25%

Percentage of members using E-Services as their primary channel 56.60% 59.20% 20%

Loan Applications 1,708 2,556 20%

NPS 59.92 67.38 10%

100%

CALCULATE FSR INCENTIVE

• Base Salary = $30,000• Hurdle met, so continue• Incentive Target = 15%, or $4,500• Achieved 107%• 107% x $4,500 = $4,815• 10% positive Modifier for NPS =

$4815 X 110% = $5296.50

2017 FSR SCORECARD







NPS 59.92 67.38 10%

100%

MODIFY TO YOUR OBJECTIVES

• Hurdles• Thresholds• Multipliers• Award Scales

HURDLES

• Key factors that are so critical to the overall success of the credit union that incentives will not be paid to anyone if the credit union doesn’t achieve them– ROA– Member Satisfaction/NPS– Minimum Capital requirements– CAMEL rating

THRESHOLDS

• Individual minimum performance levels required for incentive payout– 90% of goal– $1,000,000 loan production– 40% GAP penetration

MODIFIERS

• Used to increase or decrease an incentive payout based on one or two key measures.– If we exceed 95% “Very” and “Extremely”

satisfied members we increase the payout by 10%

AWARD SCALE

Percent of Goal Achieved Percentage Target Payout

79% or less 080-89.99% 50%90-99.99% 75%

100-109.99% 100%110-119.99% 110%120 or more% 120%

+/- OF POPULAR INCENTIVE DESIGNS

• Balanced Scorecard• Product Promotions• On-going Product Sales/Referrals• Individual Incentives• Team-based Incentives• “Gainshare” (Success Share)

BALANCED SCORECARD

• Rewards “balanced performance” based on overall job requirements

• Can reward both team and individual performance

• Links goals to key corporate strategies• Generally sustainable in the long term – can be

easily modified from year to year• Can pose tracking and reporting challenges

PRODUCT PROMOTIONS

• Short-term contests or incentives for individual products – often new – or heavily promoted

• Every sales earns $$ or points• Incentives based on individual or team sales• Gets quick results and calls attention to product• Can promotes “product pushing” and sale of

unwanted or unneeded products – focus on “active”

• Sales tracking is frequently a problem

PRODUCT INCENTIVES

• Long-term incentive plan based on the sale or referral of individual products

• Pay based on flat $ amount for each sale, or use a “point system” based on product value

• Also promotes product pushing and sale of high reward products – focus on “active”

• Tracking and “credit for sale” are frequent problems.

INDIVIDUAL INCENTIVES

• Payout based on individual production or goal achievement

• Requires the ability to track individual production• Good for competitive sales positions• Good at building accountability• Often hurts esprit-de-corps – fosters competition• Often paid regardless CU overall results

TEAM INCENTIVES

• Payout based on achievement of branch or department goals

• All employees awarded equally based on job role

• Easy to track and pay• Builds esprit-de-corps• No individual accountability for contributing to

the team; may alienate top producers

GAINSHARE

• Rewards all employees if the credit union hits it’s overall goals

• Can vary the amount of the reward by level or seniority

• Easy to track• Promotes the “we’re all in this together”

philosophy• Can cause problems for top performers if overall

CU objectives aren’t met

o Is our incentive program generating increased performance or is it an entitlement program?

o Do our incentives directly align with strategic goals?

o Does our incentive program support our commitment to employee satisfaction and need for sales growth?

o Are we incenting employees differently based on their role and contribution to production?

o Is our incentive program “Sophisticated yet Simple”?

STRATEGY QUESTIONS:

DISCUSSION TOPICS:


THINK ABOUT A “TOTAL COMP” PHILOSOPHY

TOTAL COMPENSATION• Total compensation

includes cash + variable compensation

• Percent variable varies by level

• Variable comp includes:– Incentives– Bonus– Other

Chart1

BASE

INCENTIVE

BONUS

OTHER

Sales

9

2.5

1

1

Sheet1

Sales

BASE9

INCENTIVE2.5

BONUS1

OTHER1

To resize chart data range, drag lower right corner of range.

SALARY RANGE CONSIDERATIONS

Setting salary ranges – grades and width Position in grade/range (starting, 2-years) Keeping ranges current with market Compression

SET THE RANGE FOR YOUR CU

Not all Tellers are the same

o Do we have a compensation philosophy?

o How much of our compensation will be base, incentive, bonus, deferred, non cash, etc.?

o How will we establish our salary ranges?

o How will we determine “market”?

o How will we administer and update our compensation program on an on-going basis?

o How and when will we pay our variable comp?

TOTAL COMPENSATION QUESTIONS:

A SAMPLE INCENTIVE MATRIXPosition Reward Mechanism FrequencyCEO CU Scorecard annualSVP FS CU Scorecard annualCFO CU Scorecard annualCompliance/Audit Gainshare annualAdmin Asst Gainshare annualHR Rep Gainshare annualFinancial Advisor Commission monthlyAVP Branch Administration CU Scorecard - 50%; Personal 50% annualBranch Manager Branch Scorecard - 75%, CU - 25% quarterly/annualMSR Gainshare + referral annual + as referredFSR Individual Scorecard quarterly Loan Manager Individual Scorecard - 75%; CU 25% quarterly/annualLoan Officer Gainshare annual Dealer Relationship officer Gainshare annualVP Operations CU Scorecard annualIS Manager Gainshare annualOperations Manager/Supervisor Gainshare annualOperations Specialist 1-3 Gainshare annualMortgage Originator Commission monthlyTraining/BD Officer AVP scorecard - 50% - Gainshare 50% annualMortgage Processor Gainshare + Production override annual/quarterlyMarketing Individual Scorecard quarterly

DISCUSSION TOPICS:


The GOOD NEWS about incentives:

THEY DRIVE BEHAVIOR

The BAD NEWS about incentives:

THEY DRIVE BEHAVIOR

RICHARD CORDRAY, CFPB DIRECTOR

“The CFPB is warning companies to make sure their incentives operate to reward quality customer service, not

fraud and abuse.”

COMPLIANCE BULLETIN

“Detecting and preventing consumer harm from production incentives”

“... tie compensation to various benchmarks like sales goals, including ‘cross-selling’ products and services to existing customers”

“Tying bonuses and job security to business goals that are unrealistic”

“Companies using incentive programs institute effective controls and oversight …”

COMPLIANCE QUESTIONS:

o Do employees have “line of sight”? Do they see their goals as “reasonably attainable”?

o Are there any conflicts of interest? (Supervisors who receive incentive but also monitor quality of service)

o Have we provided incentives training and explained the “why” and “how” of our incentive program?

o Have we implemented compliance monitoring procedures to catch abnormalities and implement corrective action?

o Has our Board and Senior Mgmt. “set a tone” that encourages the proper incentive culture?

DISCUSSION TOPICS:


IDENTIFY THE PRIMARY MOTIVATORS

DEVELOP STRATEGIES TOGETHER







NPS 59.92 67.38 10%

100%

COACHING TIPS

Establish primary motivator (personalize)

Set specific action goals Develop a plan of attack Provide regular feedback Hold accountable Repeat, revise, realign

COACHING QUESTIONS:

o Do my employees know how to succeed in their role?o Do I know the primary motivator(s) for each employee?o Are we getting increased production as a result of

paying an incentive?o Am I providing regular, consistent feedback on

performance (not waiting until they get their incentive)?o Are our incentives contributing to unhealthy competition

on my team?o Is each employee contributing to the team as well as

their own personal performance?

DISCUSSION TOPICS:


A HARD CHALLENGE:

Are you sure you really need an incentive program?

QUESTION #1

Are you incenting behavior and production that supports your

credit union’s strategy and mission?

QUESTION #2

Are you receiving increased performance as a result of

paying an incentive?

QUESTION #3

Are your incentives consistent with your total compensation philosophy?

QUESTION #4

Are you providing additional incentives besides the

monetary ones?

QUESTION #5

Are your incentives easy to understand?

QUESTION #6

Are you closely monitoring your incentive program?

IF YOU ARE THINKING ABOUT IMPLEMENTING INCENTIVES

THANK YOU! &

QUESTIONS?Paul Robert

[email protected]

BEWARE THE INCENTIVE TRAPSlide Number 2Slide Number 3Slide Number 4Discussion Topics:Discussion Topics:Slide Number 7IS PAY A MOTIVATOR?Slide Number 9Slide Number 10Critical Question to Answer:MOTIVATIONAL THEORY Law of EffectExpectancy TheoryExpectancyInstrumentalityValenceFarmers & HuntersMotivation questions:Discussion Topics:Don’t make incentive decisions in a vacuumLine of sight2017 credit union ScorecardHOW IT ALL TIES TOGETHERHOW IT ALL TIES TOGETHERHOW IT ALL TIES TOGETHERHOW IT ALL TIES TOGETHER2017 branch Scorecard2017 fsr ScorecardCALCULATE FSR INCENTIVE�2017 fsr ScorecardModify to your objectivesHURDLESTHRESHOLDSMODIFIERSAWARD SCALE+/- OF POPULAR INCENTIVE DESIGNSBALANCED SCORECARD PRODUCT PROMOTIONS PRODUCT INCENTIVES INDIVIDUAL INCENTIVESTEAM INCENTIVESGAINSHAREstrategy questions:Discussion Topics: THINK ABOUT A “TOTAL COMP” PHILOSOPHYTOTAL COMPENSATIONSalary range considerationsSet the range for your cUTotal compensation questions:A sample incentive matrixDiscussion Topics:The GOOD NEWS about incentives:The BAD NEWS about incentives:Slide Number 55Richard cordray, CFPB DirectorCOMPLIANCE bulletinCompliance QUESTIONS:Discussion Topics:Identify the primary motivatorsDevelop strategies togetherCoaching TipsCoaching QUESTIONS:Discussion Topics:A hard challenge:QUESTION #1QUESTION #2QUESTION #3QUESTION #4QUESTION #5QUESTION #6If you are thinking about implementing incentivesTHANK YOU! �& �QUESTIONS?

BEWARE THE INCENTIVE TRAP - CUNA Councils · New Member acquisition strategies. New Members 1,200...

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Transcript of BEWARE THE INCENTIVE TRAP - CUNA Councils · New Member acquisition strategies. New Members 1,200...