Incentive Compensation Programs

Lemme tell you a couple of things about “team-based incentives”.

Or maybe just one thing…

…they simply DON’T work!!!

Yes, I know, you’ve been running team-based competitions & contests for years and you’ve always had a winning team, right?

But have you ever really measured whether or not the business AS A WHOLE improved?

I know, you naturally assumed that, right? Everyone’s trying harder & harder to win, no?

No more.

And while there are certainly many jobs & industries where team performance is vital to the success of the overall organization, e.g., many sports, operating/surgical teams, space travel, etc., in most occupations, it’s really how well the individuals themselves perform.

In the majority of cases, a “team’s overall performance” is merely the aggregation of individual results.

Adding the individuals’ production/attendance records/whatevers together to arrive at a team average or score.

I’ve found in my experience, and in reading & researching a GREAT deal of information into this area, that incenting & rewarding individual performance is, indeed & by far, the BEST thing for your employees AND your overall organization.

Yes, I fully grasp the concepts of “not letting down one’s team(mates)”…”C’mon, everyone, let’s pull together!”…and all the other mostly bullshit & fictitious beliefs that fester in most organizations!

😱  😱  😱     🤮

First off, I have ALWAYS recognized the importance of certain team-based activities & eagerly supported/initiated/fostered those practices where true, honest-to-goodness teamwork is at play.

Peer coaching (especially with new members of the team as well as those in the lower quadrants).

Buddy programs.

Apprenticeships.

They add significant, tangible value to the overall team performance.

But when it comes to INCENTIVIZING  your people… Can you believe that “incenting” is not even a word?!? I’ve been using it, like, forever! I’m gonna have a long talk with Mr. Webster on that!…for achieving & surpassing various business goals (productivity, efficiency, quality, attendance, sales, etc.), TEAM is a forbidden word!

Notice that I say “incentivizing”.

Using a carrot to get people to accomplish stuff that is out of the ordinary. Much better than average. A significant improvement over past performance.

(That’s a WHOLE lotta different than recognizing, thanking & rewarding your people when the team/business has surpassed various overall business goals.)

Here’s what happens many times with team incentives…

Your top performers tend to get somewhat discouraged as they’re doing the majority of the heavy lifting, but all the glory goes to the team instead.

And your poorer performers often figure, “What the hell? I can never do as well as the top performers so I may as well just go along for the ride!”

(Yes, I can see some of you out there nodding in agreement.)

With individual performance-based incentives, people want to win…and they want to get rewarded for their own performance.

You don’t give everyone the same merit increase every year, do you?

At Citi, I saw the power of individual incentives in helping us achieve much better overall business results.

When I got to Aurora Loan Services (the mortgage servicing subsidiary of the Wall Street investment firm, Lehman Brothers), there were lots of team contests.

They had these paper racing horses (beautifully-colored, I might add!) running across the wall, heading toward the finish line!

But all it really did was MEASURE each team’s performance to see who eventually “won”.

But what was the purpose?

Did it actually get people to try harder?

Was anyone deep-diving to see if our OVERALL PERFORMANCE AS AN ORGANIZATION even inched forwarded?

Actually, I did measure overall performance (within the program parameters) & there were no perceptible improvements whatsoever.

Why even have a program then? Why even waste money on the colored paper & oak tag paper (poster board)?

To see which team was “lucky enough” to be blessed with a higher percentage of the better reps?

Really?

Simply measuring stuff will NOT, in & of itself, improve performance. (Of course, you need to measure things. Duh.) But a leader’s responsibility is “constant, continuous improvement”!

Accountants & support staff measure stuff. Bob Cruz (my “boss” in NY CitiPhone, 2/87-5/88) measured stuff.

(Accountants & support staff are actually doing their job. He, on the other hand, was totally useless. 🤬)

(Note: Considering the fact that I spent 30 years @ Citi and <1/2 yrs @ Lehman, I seem to write “considerably-more Lehman stories”.

Now, my people were great! But the overall Operations leadership team was pretty weak (with a few exceptions)…and the company itself was waaaaaaay behind the times!

I really didn’t feel thst I hadda come up with a ton of Earth-shattering ideas.

My biggest challenge was trying to remember what I had done at Citi & then fighting with everyone under the sun to convince them that this stuff actually worked!!!

“I did this 10, 15, 20 years ago already! Believe me, it works!” was my favorite line by far!

And it was EVEN WORSE at Nationwide Financial (the fully-owned subsidiary of “Nationwide, we’re on your side!” & Peyton Manning’s & Brad Paisley’s illegitimate child)…they were even more behind the times, losing hundreds & hundreds of millions in operating profits every year, and totally clueless about how the rest of the financial services industry operated!)

But, once again, I digress.

I created an ICP/Incentive Compensation Plan with 5 areas of measurement for my Customer Service business: Customer Satisfaction (based on 5 specific telephone surveys conducted monthly for each employee by an outside firm)…Internal Quality (based on the average of the individual’s monitored calls)…AHT/Average Handle Time (the combined average talk time + average “after-call work time”)…Occupancy (the % of time the rep spends “answering calls + waiting for calls”, divided by the “total number of paid hours”; unlike any other incentive program I knew or read about, this program actually took a rep’s absenteeism into consideration)…and Sales (the # of qualified sales referrals/leads provided to our Refinance Dept).

It was “funny” when I got “grilled” by Aurora Corporate HR regarding the inclusion of “unscheduled absences” into the Occupancy calculation.

My position? “Look, I fully understand that there’s an ‘allowable amount’ of unscheduled absences that an employee can take before we even consider taking any disciplinary action whatsoever.

“I get it & I fully agree!

“But this is an INCENTIVE program, designed to get people to drastically improve their performance. If someone calls in sick & they’re getting 8 hours of pay, but I’m getting -0- production from them that day, then that must count against them.

“If I have one employee who got paid for 21 days & gave me 21 days of work, that must count more than another employee who also got paid for 21 days, but only provided 20, 19 or even less days of production!”

It’s not a matter of following rules or (not) getting into trouble. This program is for those employees who excel in certain categories while not failing standard in any of the 5 measurable areas of performance.

They agreed.

It would take an objective look at an individual’s performance & contribution the the group.

I then calculated some performance goals for the different categories & the anticipated financial saves from each forecasted improvement.

For example, in a call center environment, the more efficient you become (as measured by AHT & Occupancy), the less people you require to maintain the same “service level” (average speed of answer).

The Customer Satisfaction & Internal Quality measurements keep everyone honest so no one was cutting corners to “appear more efficient” (but actually causing more repeat callers & dissatisfied customers).

When I calculated the annual saves, I decided to “give back” ~30% of those savings to the people.

If we were to decrease operating expenses by, say, $100, then I booked $70 as an expense reduction & $30 went to the high performers in terms of “incentive compensation”.

From Day 1, the program was an incredible resounding success!

It surpassed even my own wildest expectations.

In 3 months, the organization reached & surpassed EVERY single financial goal!!!

Whereas we’d normally hold a new hire training class every 3-4 months to address volume increases, seasonality fluctuations & turnover, I was able to CANCEL the next 2 training classes.

From the day I joined this mortgage servicing business, I was warned about the dreaded “First Quarter”. Service levels would surely plummet as call volume significantly increased (just as they had the previous 10 years or so).

Not this time. At least not regarding a deterioration in Service Level.

Not only didn’t we hold a new hire training class in late November (as they would’ve hit the floor mid-January to handle the call crunch), but we sailed through January, February & March with unbelievable service levels. Our standard was “80% of callers answered within a 30-second wait”.

We did 99.8% in January, 99.7% in February & 97.4% in March!!! We also took on an increase of ~15% in our servicing portfolio…without having to add a single new person!!!

In reality, we were grossly over staffed!

We kicked all the doom-and-gloom projections right in the teeth (the previous year, before I arrived, they averaged ~55%-60% in Service Level, with a new class on the floor & no major acquisitions)!

And that’s ON TOP of the seasonal volume increase we always experienced 1Q as everyone’s doing their taxes, getting their escrow analyses, and remembering that they actually had a mortgage!

As we were (theoretically) overstaffed…Tell me now, what do you do when your unit suddenly becomes unbelievably & incredibly super-efficient within weeks???…we started concentrating on more Refinance cross-sell programs (all individually-based incentives), training groups of reps to handle “early-stage Delinquency” calls (to assist our Collections Dept as delinquency rates shot up from 3.4% in Sept to over 16% in March!) & increasing our individual coaching sessions to further improve Customer Satisfaction & internally-measured Call Quality!

BTW, if you think that we may have suffered a bit from all the productivity improvements…our after-call unproductive work time decreased 50% from 1 min to 30 secs!!!…it should be noted that our TOP-BOX CUSTOMER SATISFACTION numbers increased from ~62% (when I joined in 4/07) to a staggering 74% just one year later!

Even the company who conducted our customer telephone surveys (5 completed lengthy surveys, per rep, per month) was amazed at our results…and they handled hundreds of different companies!

They even presented us (actually, Jody Trautman, our main interface with them) with a special gold award recognizing our achievement

Oh, if & when you’re considering an Incentive Compensation Program for your organization (FYI, they work for back-office clerical units as well as I designed one for First American/CoreLogic regional service centers at my next job), just remember a few things…

You must set minimum performance standards for each performance category. One can’t do really well in a few areas but “fail miserably” in others, yet expect to receive incentive compensation.

While you set minimum performance levels in each category, you’re basically measuring “how much better than standard” the employee is performing in each performance area. It must be a BALANCED scorecard.

And Incentive Compensation = $$$$$ (or the cash equivalent, e.g., gift cards), but NOTHING works better than the green stuff.

When people are earning 5%, 10%, 20% or higher payouts every month (as a % of their monthly salaries), there’s absolutely nothing better! I had a few reps pulling down 30% & higher monthly payouts!

And the more money the people made, the better the overall performance results for the business!

It was the proverbial win-win!

Do some reading & research. Ask your buddies in other areas of the company about incentive programs. Ask people you know in other companies or industries. Attend a seminar/webinar & learn from different experts. Talk with your senior managers about the concept.

And to be totally honest (duh), for years & years, I never embraced the whole theory surrounding incentive programs.

Because I was stupid (er, not really exposed to the whole practice & the basic principles behind it).

And because I was probably stubborn (after all, I could lead any organization under the sun to never previously-achieved heights, right? I don’t need no damned incentive program as a crutch!).

And I foolishly believed that they were only appropriate for sales organizations.

As long as the program yields improved bottom-line results…decreased expenses, improved revenues, better customer/employee retention &/or any other tangible & measurable metric…then it’s ABSOLUTELY the right thing to do.

For your company AND your people.

And GOOD LUCK!

 

And, as always, thank you so very much for listening!