An effective and fair incentive scheme for staff at your car retailer has many benefits. Incentives are, at their core, a system for rewarding staff for a sale – whether that’s a vehicle or an aftercare product, such as GAP insurance. It’s important, however, that incentives take into account both quantitative (how many sales) and qualitative (customer satisfaction) measures – as the Financial Conduct Authority (FCA) outlined in their guidance document, “Risks to customers from financial incentives“.
FCA guidance aims to reduce the risk of mis-selling to consumers by making sure that staff bonuses or other rewards fit within a range of measures and don’t adversely influence sales to customers. For example, alongside unit sales, schemes could also take into account customer satisfaction surveys, complaints information and business manager reviews. The FCA has provided a basic incentive structure example, which is weighted:
- 25% on unit sales
- 25% on the result of independent sales quality testing
- 25% on product cancellations and/or upheld complaints
- 25% on customer service measures.
For more information on FCA guidance changes regarding staff incentives, download our FREE eBook: FCA regulations – how will they affect you?
Reviewing your incentive schemes
Incentives are a key focus area for the FCA, whose three main objectives are:
- Protecting and improving the integrity of the UK financial system
- Promoting competition in the interest of consumers
- Ensuring an appropriate degree of security for consumers of financial services.
It’s worth remembering the regulator understands incentives are widely used in sales and is not discouraging them. There is a common misconception that incentivising staff to sell is seen to be wrong but this is not the case; instead, the FCA wants businesses to remember that incentive schemes should be designed to reward good performance, both from a sales and from a customer service perspective. They should lead to customers being offered the best products to suit their needs – not the products that will land staff the biggest bonus.
When reviewing your incentive schemes, the FCA has stated it expects retailers to:
- Consider whether incentive schemes increase the risk of mis-selling and, if so, how
- Ensure appropriate governance controls for reviewing performance related incentives are in place
- Take action if any inadequacies are identified when adhering to FCA guidelines
- Where risks of mis-selling cannot be mitigated, change the incentive scheme
- When a recurrent problem is identified, investigate and ensure consumers do not suffer further detriment.
What does a good incentive scheme look like?
To understand what a good incentive scheme should look like, it is useful to know what the FCA has stated would promote inappropriate sales behaviour. This includes:
- Having “first past the post” super bonuses
- Having multiplier bonuses for cross-selling products
- Having minimum monthly sales thresholds.
When reviewing your incentives or introducing new schemes, you should consider:
- Deductions for poor performance – e.g. high cancellation rates
- Rolling target thresholds to avoid a sales rush to meet a deadline
- Balanced scorecards that reward qualitative and quantitative sales performance
- Regular monitoring and reviewing of schemes to reduce consumer risk.