Are you using incentives the right way?

by Sean Payant, PhD.

Nothing is as controversial in banking as the incentive discussion. What should we call incentives? How should we construct the program? How should we measure them? Who is eligible to receive them? What qualifies as a “real” referral? And so forth. The truth is we make the incentive process entirely too complicated. We’re looking for a one-size-fits-all approach that will last for the next 10 years. Unfortunately, that is unrealistic on all accounts.

Incentives should be for a defined period, ideally no more than three to six months. They should be tied to achieving a previously defined goal. When incentives are effective, they are about celebrations of accomplishments. In addition, the most effective incentives are group-based rather than individually based. Individual incentives change the focus of the employee/customer relationship. When employees are incented for bill pay or e-statement take rates, it becomes about them rather than the customer. The motivation moves from doing the right thing for the customer, to doing something for personal gain.

When we promote products and services, it should be for the sole purpose of teaching customers how these products will enhance their lives, not to earn ourselves a $2, $3 or $5 incentive.

Researchers have consistently shown that intrinsic motivation is more powerful and more sustainable than extrinsic motivation. For example, “I provide extraordinary customer service because I feel valued by my organization and I enjoy making people feel valued.” Compare that to, “I do these things because I get in trouble when I don’t.” One is derived from an attitude of service. The other is to avoid a punishment. It has been shown that intrinsic motivation might better be encouraged by genuine recognition from the bank’s leadership for a job well-done, rather than by some token financial incentive. Sadly, it has been my experience that many executives don’t seem to make recognizing their people’s accomplishments a priority.

When constructing meaningful incentives, it is important to bring employees together to accomplish team goals. For example, “During this week, we need to add this many new customers to our bank family at our branch, and we need to make this many referrals to the mortgage lending department. When we achieve our first week’s goal, we all earn a branch lunch. When we achieve our two-month goal, we all earn a half-day of paid time off.”

As leaders in our organizations, we need to spend time thinking about how to keep our team motivated and engaged. Properly constructed incentives are one vehicle to make sure that our business development goals are being reached. Make your incentive programs simple, understandable and finite – results will follow.

One Comment on “Are you using incentives the right way?”

  1. Good insight on this valuable activity. I appreciate the important reminder to always keep the incentive designed to benefit the customer. Thank you for the wake-up call to review the focus.

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