To incent or not to incent? That is the question your credit union should be asking

It’s been about six months since the Wells Fargo incentive debacle hit the CFPB fan. Since that time many of our credit union clients have asked for a review of their incentive and total compensation programs to make sure they adhere to the required “effective controls and oversight” and their incentives don’t cause “significant harm to consumers posed by incentive programs”.

The first (and most challenging) question in any review of incentive programs should be simply: are we sure we really need an incentive program? Many credit union executives assume they need monetary incentives to produce the growth their organization desires. The fact of the matter is many employees, including those in your “sales” positions, don’t rank money as their primary motivator. They’d be just as happy and highly motivated by other forms of recognition.

But if you insist on having a monetary-based incentive program, here is a six-pack of considerations to make sure you’re optimally successful and compliant:

  • Are you incenting behavior and production that supports your credit union strategy and mission? The good news about incentives is they drive behavior; the bad news about incentives is they drive behavior. Make sure all incented behavior upholds your goal to be the member’s financial “partner” and you’re not unintentionally driving the wrong behaviors.
  • Are you receiving increased performance as a result of paying an incentive? The only reason you should be paying an incentive is if you’re receiving production you wouldn’t otherwise be receiving. Don’t pay an above-base incentive if you’re not receiving above-base production from sales staff.
  • Are your incentives consistent with your total compensation philosophy? Make sure your incentive payments are keeping you within your market-based pay grades. If you’re already paying above market on a base salary, you don’t need to also pay above market on incentives.
  • Are your incentives easy to understand? Your incentive plan should adhere to the KISS principle – keep it simple, stupid! Limit the calculations to no more than three variables and make sure all employees know exactly what they need to do to earn their incentive.
  • Are you providing additional incentives besides the monetary ones? As noted above, not all employees are going to be motivated by money so make sure you have other motivators in place – time off, awards, President’s Club, etc – and include your employees in the program design.
  • Are you closely monitoring your incentive program? Someone needs to own your incentive program. Often, that owner is the HR Director but others should be included in the management and oversight of it. Board committees, CFO, Sales Manager, Marketing Department, and Senior Executive Team all share the vital responsibility of maintaining the program’s integrity.

If your credit union needs to review your incentive program for compliance and appropriateness, I have two options for you: 1) email me at probert@fi-strategies.com to set up a no obligation conversation about what you’re doing today and how to best position your incentive program for the future; and 2) check into a webinar I will be hosting on Thursday, June 8 called “Avoid the Incentive Trap” – contact Lacinda Athen at LAthen@cuna.coop for details.

Paul Robert

Paul Robert

Paul Robert has been helping financial institutions drive their retail growth strategies for over 25 years. Paul is the Chief Executive Officer for FI Strategies, LLC, a small but mighty ... Web: fi-strategies.com Details