“Bank failures are caused by depositors who don’t deposit enough money to cover losses due to mismanagement.”
–Dan Quayle
Most financial institutions are in at least the third or fourth phase of developing a sales and service culture. Phases one and two program development (sometimes more than one) entailed building leadership, program design, product review, creation of training programs, and initial roll-out. Subsequent phases included final roll-out, front-line training, front-line re-training, program adjustments, review and adjustments of plan rules, maturing of reporting, and other actions that serve to mature and focus programs.
Then, for everyone lucky enough to have gone through mergers, management overhauls, restructuring, and other major corporate changes, it might all have happened again. Double the fun.
However we look at efforts to date, as we enter 2013, it’s fair to say that many in our Gonzo community have moved the sales/service culture past talk and into action. As part of that journey, bankers have talked and thought a lot about the elements of a successful sales/service culture. However, as we look at 2013 planning and budgeting in the next six to 12 weeks, it may be time to consider one aspect of the culture that may not be as far along as one might think – compensation.
To be fair, compensation plans evolve and grow as all of the other phases are put into place. They’re not started by handing out lots of loot. Bankers have to see how they will adjust goals/plan focus. They have to learn what works and doesn’t with recurring or one-time bonus plans. And, especially at the “C” level, it will be important see the results before committing to budget increases in times where reducing costs is a parallel but equally impactful company initiative.
That said, managers have told their employees, “Show us the behavior.” Fair enough, but they get to say, “Show me the money”, si?
Si.
The Gonzo team has literally spent hundreds of days with bank employees who are tasked with execution of the organization’s sales/service culture. These folks are committed to the culture shift. They recognize that the bank cannot succeed without it. In many cases, they also need to see the compensation/payment side of the program get tighter and more in line with the expectations set.
So, as senior managers look at compensation plans for sales/service employees, here are six things the Cornerstone [1] team thinks could help, based on practices we have seen with clients.
- Challenge the impact value of current payment amounts. In most cases, the target payment for managers or new accounts employees is less than 10 percent. For tellers, it is usually 5 percent or less. This can result in a lot of monthly incentive payments of $50 or less. Is this a behavior changer? Uhhhhh, would any of us reading this get excited about it? Depending on your wheels, that’s not a tank of gas after taxes, dudes. So some of our clients have decided “no” and have begun to target payouts that average, not target, 5 percent to 15 percent. The increase cost may be worth the result in focus.
- Widen the difference between the average payout and what a high performer makes. In high performing sales cultures, meritocracy is in full force. The high performer will easily make three to four times what the average performer makes. What is that ratio in your plan? If the star is only making 50 to 100 percent of the average, are they really being rewarded and motivated enough? And is it reflective of the value they add? For example, the guess here is that the portfolio profitability of the highest performing commercial relationship manager is several times that of the average portfolio. Is this reflected in the reward?
Start allowing negotiation of splits. In most sales cultures, there is an internal negotiation of many sales – one person may source, one may close, one may fulfill. Does the organization’s culture allow for this? It will become more of an issue as customers use non-branch/loan office channels to apply for new accounts but need the office to close/fulfill. Think of the possible combinations of channels that customers could use, and that are encouraged by the bank, in a buying decision. Online and branch. Call center and branch. Branch, online and loan office. Too often, we see rules such as “whoever closes gets the credit.” As multiple channel usage becomes commonplace in buying, rules to allow for splits or shared credit will need to accommodate it.- Focus more attention on relationship build and reduced attrition. Many successful sales programs place a premium on relationship growth with increased payments and higher percentage earnings for true relationship builds. One of the most amazing statistics we have seen among our clients is that they close 100 accounts for every 115 they open. In other words, 115 new accounts opened nets, on average, 15. Ugh. We believe one of the reasons for this is too much emphasis on the new customer and not enough on securing the second relationship down the road. In any analysis we have ever seen, the second relationship, and the third even more, cement relationships and reduce attrition. Question whether the bank’s plans do, too. Or, in other words, don‘t pay for 115 accounts if you only get to keep 15.
- Build in a customer profitability weight. Many sales programs and compensation plans, particularly in the brokerage arena, reward sales to customers that are shown in profitability analysis to account for a greater percentage of overall profitability. Certainly, account balances are a proxy for that, but simply looking at that is too simple, because we have all seen that balances indicate high profitability only at very high levels. Fee income, debit/credit card transaction income, and other factors are equally important. Don’t we want sales to focus additional efforts on customers that produce more profit, or may? Do we pay for it now?
There is an old saying that I’ll clean up for a high-class publication like GonzoBanker: “Money talks and Baloney walks.” It may be time to conduct a review of those important incentive dollars and make sure there is adequate focus on employee impact, reward of high performers, attention to profitable customers, and getting ready for the world of multi-channel sales and delivery.
Let’s get our money to talk.
-tr
100
= The median number of branch FTE supported per sales/product manager
This according to the findings of The Cornerstone Report: Benchmarks & Best Practices for Mid-Size Banks [3], for which Cornerstone Advisors surveyed 62 banks on their staffing and process benchmarks, technology utilization and deployment practices. (The 25th and 75th percentile numbers are 54 and 162, respectively.)
Cornerstone Advisors can help your institution benchmark its performance [4] in over 250 key metrics across 17 bank areas.
Our goal is to help your institution increase productivity and revenue and decrease expenses. It’s that simple.
Contact us [5]to learn more.
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