"I dread finding myself in front of the CEO and the board trying to explain how we paid out dramatic increases in incentive compensation dollars for sales production that somehow brought in only a single-digit increase in revenue with little to show for it on our bottom line."
--Head of retail for a top 20 U.S. bank, in a conversation on sales incentives
Lately, I have heard several executives unload similar fears and regrets. They are struggling to deal with a flawed incentive strategy that hurts all the institution's constituencies:
There is the board, persuaded to approve ever-larger budgets for incentive comp on the promise of more revenue, profits and shareholder value.
There are managers, like the head of retail above, aware now that if incentive comp is the only arrow in their quiver, they will likely run out of money before they can build a sales force that can create long-term, profitable relationships. There is the sales force itself, caught in the conflict between short-term selling and longer term relationship-building. There are the customers, on guard against the irritating, uninformed product pitch unrelated to them or their needs.
Many incentives are flawed
There is no doubt that sales incentives are here to stay. In our recent sales culture study, all of the large- and medium-sized banks confirmed that they have sales incentive programs. But as the executive above pointed out, many are flawed: They pay on volume, and often the easiest way to hit the numbers is to target customers who are easy to convert. So, most incentive sales schemes adversely select for customers who are transient, difficult to cross-sell and easy for competitors to take away. In other words, sales incentives mean extra effort and extra compensation to develop customers who do not increase the bottom line.
An incentive is what you pay to encourage someone to do the right thing--to do something he or she believes in already. A bribe is what you pay someone to do what he or she knows is wrong or does not otherwise believe in. …