Incentive compensation in real life
Have you played Grand Theft Auto, Minecraft, Roadrash or any other video game? What is the most motivating moment for you while playing the game?
The increment in levels and incentives associated with it, right? That’s how these games have become an immersive experience, I remember playing Roadrash all day long just to be able to buy stud-bikes!!
Why are these perks, incentives, compensations, and benefits so important to individuals?
If your stakeholders are feeling demotivated is it because of your weak incentive compensation plans? We shall understand all of that but we all know human behavior is usually driven for a desire for external rewards.
Why is an incentive compensation plan such an important part of an organization?
Incentive compensation plans remain pivotal to the success of an organization.
Whether it’s the sales folks, outsourced business partners, Collection Agencies, Verification Agencies, Marketing Agencies, everyone will work in tandem with the goals of the company if their efforts are aptly rewarded.
It triggers ‘job-satisfaction’, ‘job performance’, and more.
Incentive plans are supposed to impact the behaviors of stakeholders each and every day.
They incent people to go that extra mile and work harder and smarter, collaborate with their co-workers to drive new and innovative ways of uplifting the organization. Nothing like transparent incentive compensation, right?
It’s no surprise that firms across BFSI domains are aggressively fine-tuning their compensation management plans.
But the most critical aspect to be noted is –
if compensation plans are designed or implemented incorrectly then it can do more harm than good and this is the reason why a hawk-eye analysis and focused research goes into building a compensation plan that is aligned with the business goals.
Let’s dive deep into understanding the reasons why compensation plans don’t work and how financial institutions can avoid pitfalls plaguing their incentive compensation plans?
Energetic, addictive and challenging, factors of team cohesion are likely to spike the commercial results of your financial institution.
- Just like the video games above that keep us on our toes and consume persistent efforts of an individual, every compensation plan must adapt this appealing feature and keep the motivation of their sales partners, third party agents, and employees skyrocketing.
- Every compensation plan must ensure that there are suitable checks and balances to ensure that there is no scope for hard-stop/conclusion.
- The important factor to consider is Are incentives due for booking the sale, or against the execution of the contract and payment?
- Plan mechanisms should permit a reasonable upside for good performance which depends on the perceived difficulty of those levels. Failure to do so stake-holders might just end up working on “auto-mode”, anticipating that incentive is guaranteed.
A good gamified compensation plan can be built by defining goals associated with an activity.
Is your incentive compensation plan in sync with the gamification feature?
If yes, then you are on the right track to achieve a multi-fold increment in revenue. If not, then now is the time to upgrade. An agile compensation solution might come to your rescue if you wish to incorporate an incentive plan that consumes minimal lead-time to meet changing strategies.
2. Overly complex and Traditional Plans
Traditional compensation plans curbed all the cross-selling initiatives – for example, Brenton bank wanted to encourage cross-selling of their products and services. They wished to induce a referral culture between the banking team and the brokerage team but it was not possible to do this considering the overly complex system of compensation they had.
- The system was so hay-weird that both the teams feared the loss of their customers to the other team, whereas in reality both the teams actually offered complimentary services.
- Brenton had to break-away from traditional practices and revamp their incentive plans so that bankers could receive their commission for broker product sales and brokers could receive a commission for banker product sales, quite a win-win for business!
- Traditional plans are a thing of the past, revamp your incentive compensation plan to increase cross-selling, this can be a great way to increase revenue and keep your stake-holders motivated.
- This powered and motivated the entire sales team to work in sync and proactively achieve sales goals of the Brenton.
3. Target Setting:
Market opportunity, internal support, team size, product portfolio, competition, backend support, etc. there are a plethora of factors influencing target setting.
- Traditional incentive compensation plans fail to incorporate them for different business stakeholders.
- Past-performance and past pay-out distributions are important factors in framing compensation plan but there are so many other factors are to be taken into account, especially in this dynamic business world
- Targets must not be too high (unachievable) or too low (easily achievable). 95% should be able to achieve threshold performance. 75% must be able to achieve target performance and 15% should be able to perform extraordinarily.
Is your compensation plan adapting these critical factors while computing compensation? If not, then trust me, its time to drift away from the ‘old-school’ style of computing compensation.
4. Inappropriate measures:
The right performance matrix for teams can ensure compensation plans to work more effectively. Here are a few metrics to consider while building your compensation plans:
- Topline or bottom line, know what matters and what can influence high market penetration and increase money inflow.
- Carefully choose a 4-5 sales performance matrix and keep your sales team educated about it, so that they know it’s important.
- Select these matrics with important stakeholders. Discussions with them will be highly effective and help your financial institution move rapidly towards achieving sales objectives.
- Give your sales folks, outsourced business partners, collection agencies, verification agencies, marketing agencies personals real-time insights into their performance. Let them have access to view their paths and goals every single day. Motivation always comes with transparency.
Have you incorporated these matrices into your incentive compensation plan?
Important features your new-age, disruptive incentive compensation plan must have:
- Workflows for System-driven Approvals – The system has to have configurable workflows and controls in places to efficiently manage and monitor payouts.
- Seamless Implementation – A compensation solution must be seamlessly integrated with the existing technology ecosystem such as core-banking & payroll systems of the company.
- Powerful Modeling Platform – Incentive compensation plan should be able to facilitate the introduction and implementation of new compensation plans, with minimal lead-time to meet changing strategies.
- Achieve smooth compensation adjustments – Compensation Adjustments like Payout Hold-back, Claw-back of commission from prior months, Advance Payout, Deviations, Manual Adjustments should be made easy.
Does your compensation incorporate all of the above features? Well, check out ACT21 Software’s Disruptive Compensation Automation solution – iNCENTIVO and Reduce pay-out cycles by up to 87%!
Why is incentive compensation only for sales folks? Don’t other stakeholders also play a very important role to help financial institutions achieve larger goals. Here is a solution that covers all of them for you, absolutely seamlessly – iNCENTIVO..
We bet there is no Incentive Compensation Plan in the market that can focus on the nitty-gritty of compensation for all the stakeholders. For an exciting demo get in touch with us today!!