Slicing the Pie

By Julie Monahan

To better align sales efforts with customer needs, employee incentive rewards must be apportioned appropriately.

Most bank performance incentive systems are fairly straightforward: the company distributes financial rewards to employees who meet sales objectives. The problem, though, is that the products representatives are asked to push may not always be appropriate for the customer, or even profitable for the company.

That's why there's more work to be done in overhauling sales incentive systems. At stake is the future of consultative selling, an industry-wide priority that is supposed to incorporate an attitude of customer care into the pursuit of cross-sales. It has become starkly clear that such an approach will stall without a reward system that appropriately motivates representatives.

It is by no means simple to recalibrate a traditional sales incentive system, however. To work properly, needs-based selling usually requires that generalists in the branch refer customers to consultative specialists, either elsewhere on the premises or off-site. That raises all sorts of issues regarding who gets credit for the sale. Absent a clear and fair system for sharing rewards in referred sales, employees can become confused and alienated, thus vitiating the whole exercise.

Sales training consultants recommend a multi-layered approach. The mix includes incentives shared between units; deferred bonuses that reward customer retention; networking between sales staff in different divisions; and comprehensive product training that gives employees the skills to better match customers to products. Some institutions have found value in a supplemental sales accounting system that tracks revenue as it is booked and then credits the department that made the referral.

In addition to sales and referrals, it also helps to link incentive pay to customer satisfaction, profitability and retention. Rewarding employees for contributing to the company's overall profitability is an additional way to promote desired behavior.

Having devoted so much effort to just getting their employees to improve sales performance, managers may be reluctant to tinker with the incentive systems they've already put in place. But many consultants and bankers believe this is a battle worth fighting, since satisfied customers ultimately mean a healthier financial institution. "A compensation system that motivates representatives to do the right thing for customers and the right thing for the bank will have a positive impact," says Charles Wendel, president of Financial Institutions Consulting Group in New York.

Sales Backlash

Banks became serious about building sales cultures in the '90s as they expanded into mutual funds, brokerage and insurance products, usually by acquisition. The premise behind such diversification was that banks could leverage their established customer base through cross-sales of non-bank products.

Hence the drive to instill a sales culture in companies that had previously been operations- and service-oriented. Bankers hired sales management consultants to help train and motivate their employees to sell. And they built incentive systems that encouraged such sales.

But success stories are few and far between, and experts cite skewed incentive systems as a major culprit. For one thing, reps often are incented to sell products that are the most remunerative to the institution — a problem if they don't consider how appropriate that product might be for individual customers.

If employees "feel like they're selling just for the bank's benefit, it feeds their natural reluctance to sell," says Jim Schneider, president of Jim Schneider Sales Management, Inc., in Englewood, Colo. "After a while, a backlash starts to develop."

And the sales themselves may not produce the desired financial results. Unless transactions are tied to customer needs, accounts are often under-used or abandoned altogether, leaving the provider with little to show but expenses.

What can be done to improve this situation? It's easy to declare an objective of incenting employees to strengthen customer relationships. But implementing such a system requires that reps be rewarded for referring customers to the personnel who can give them the most appropriate attention. And that, in turn, requires some method of allocating sales credit so that employees are rewarded fairly for such referrals.

Under a typical referral system, a bank might reward employees, say, $3 for selling a checking account or $15 for a car loan, then add a $20 incentive for a successful referral to a broker or insurance agent. "That extra cash encourages reps to find out what best suits the customer," says Trish Springfield, client support services manager at National Commerce Bank Services, a consulting arm of National Commerce Financial Corp. in Memphis.

But only up to a point: handing over $20 won't be enough to convince a branch manager, for example, to give up the sale of a $20,000 certificate of deposit even when a mutual fund would make more sense for a particular customer. Employees worry that contributing to the revenue of another business unit will create a perception of disappointing sales performance in their own. If banks want employees to do the right thing by their customers, issues such as this have to be resolved.

Referral Rewards

"Shadow accounting" may provide a partial answer. What sounds like an unsavory tax dodge is actually a sales tracking method that counts revenue where it was booked and then credits the department that made the referral. This way, when a branch sales rep helps her colleague across the aisle by steering a customer with a maturing $20,000 CD to him, she too gets credit for the sale. "If a bank is not successful with shadow accounting, it may fail to recognize employee contributions," Springfield says.

At First Tennessee National Corp, loan officers can either offer mortgage applicants a 15-year loan through the branch or refer them to First Horizon Mortgage Co., the bank's mortgage unit, where customers have more financing options. Until Memphis-based First Tennessee began crediting the branches for the loan volume lost to the mortgage unit, referrals were disappointing, even though employees received incentives for making them. "Since then, we've seen a significant increase in the level of referral activity," says Greg Paule, senior vice president at First Tennessee, "because now we are recognizing and rewarding employees for doing the right thing."

Monetary incentives can't do the job on their own, however. Even if a branch banker knows a customer is right for a trust account, the leap to an actual referral may depend on how connected that banker feels to employees in the trust department.

What's needed is a team-based selling approach, which is unusual in banking, although it has worked in other industries. "The best performers in any line of business are the ones who have succeeded in fostering internal referral relationships," says Nick Miller, president of Clarity Advantage, a sales management consulting firm in Acton, Mass.

Such relationships turn customer referrals into a two-way street and help overcome the protectiveness that employees naturally feel towards their customer contacts. "People learn to trust each other," Miller says.

This networking should amount to more than just handshakes over coffee and muffins, however. Employees need to understand the roles, responsibilities, marketing focus and service standards of their colleagues. To get to that point, according to Miller, "You could be talking about two to three years of work."

Such a team-selling approach may get a boost from joint incentive plans that cover multiple lines of business. Under this system, financial rewards only come when the whole team gains. "That goes a long way toward building camaraderie and a joint effort to bringing in new business," says Herb Marth, a vice president at Omega Performance Corp., a sales training company in Charlotte, N.C., that specializes in financial services.

Manual Tracking

Beyond encouraging referrals, an incentive system needs to elicit employee support for broader company goals. Cincinnati's Fifth Third Bancorp, for example, has made accountability for overall corporate profitability an inherent part of its incentive strategy. Up to 30% of a branch employee's income can be earned through bonus pay that is tied to a blend of individual and departmental sales goals, as well as corporate profitability.

The focus on enterprise-wide returns also keeps employees from neglecting customers once they are on board. In Fifth Third's view, it's not enough to reward employees just for racking up sales. Incentive pay must also recognize quality service that helps retain customers and attracts new ones. "Banking centers can't afford to have customers leave, given what it takes to replace that income," says Wil A. Daly, Fifth Third's chief marketing officer.

As an example of how an incentive system could be used to reinforce the goal of customer retention, some experts advocate staged payouts. John Kapitan, senior vice president in the financial institutions practice at Stern Stewart & Co., a New York consulting firm, recommends a bonus reserve system, which gives sales staff consistent financial returns for successfully managing their customers. But if customer retention decreases, so do the bonuses.

Since retention is a function of customer satisfaction, some banks have designed incentives that incorporate that metric. Experts warn, however, that measuring customer emotions is a tricky process that could undermine employee faith in incentives.

One problem is reconciling the difference between what satisfies a customer and what satisfies a sales-minded branch manager. "Managers want their sales staff to greet customers courteously, assist them with requests and thank them for their business," Springfield says. "While some customers appreciate the outreach, many others simply want to get their transactions done."

Another problem is attributing sources of customer dissatisfaction. An account statement error or malfunctioning automated teller machine may have nothing to do with branch performance but can easily sour a customer's overall impression of the company. Consultant Miller says one solution to the pitfalls of measuring customer satisfaction is to use surveys that ask questions specific to the individual branch and the specific services and interactions customers encounter there, as opposed to an overall impression of the bank.

Rex Coble, director of MarketBuilder Services, a division of RSM McGladrey Inc. in Des Moines, suggests the use of "mystery shoppers," consultants or employees who masquerade as customers and visit individual branches to monitor sales and service.

A final issue involving incentive systems has to do with tracking all the information needed to make them work. Bankers often complain of limitations in the current generation of automated systems. As a workaround, many institutions start by manually extracting data from different automated sales tracking systems, and then enter that information separately into a database or spreadsheet file.

Even manual tracking can reassure reps their hard work will be rewarded. Otherwise, says consultant Marth, people will lose faith in the system. Such tracking is also a serious performance measurement tool. "This is not just a matter of compensation. Reliable tracking determines who keeps their job and who doesn't."

That brings incentive systems full circle, from customer needs and institutional profitability to employee rewards and performance measurement. The transition to a new model — where customers' needs and employees' capabilities and limitations are better addressed — may be difficult. Realistically though, institutions staking their future on consultative selling have little choice.

Ms. Monahan is a freelance writer based in Seattle.

Copyright © 2003 by Banking Strategies, published by BAI.

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