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Quick guide to spotting good and bad incentives

Do you know what to look for in good and bad incentive schemes? That does not mean which ones drive better performance among your sales staff, although this is undoubtedly why incentives are used, but which ones protect the customer from aggressive or misleading sales pitches.

Following the publication of the Financial Conduct Authority’s guidelines on incentivising sales staff, it pays to know the difference between a good and bad incentive.

If you want to learn more about the FCA’s regulation changes, you can download our latest eBook here.

WHAT IS A BAD INCENTIVE?

These are the incentives that significantly increase the risk of mis-selling. They are not designed to protect the customer and simply encourage sales staff to bonus chase. A few examples:

• Target focussed incentives – including retrospective accelerators, first past the post competition bonuses and enhanced annual bonuses
• Accelerators (or stepped payments) – including higher incentive rates for higher sales or increased remuneration for reaching sales targets early
• Product incentive bias – including larger bonuses attached to certain products and bonus accumulators attached to cross-selling
• Variable salaries – including a sliding remuneration scale based on sales targets and reductions in basic pay if sales targets are not met
• Competitions/promotions – earning additional payments or prizes through increased sales volume or through product specific promotions.

WHAT IS A GOOD INCENTIVE?

Incentive schemes have a bad reputation for driving mis-selling but that can and should be avoided. The FCA understands the need for incentives and, therefore, has outlined some examples of good practice:

• Take action on poor quality – introduce deductions where poor quality (e.g. high cancellation rates or complaints) is identified
• Replace threshold incentives – introduce rolling target thresholds so sales staff are not focusing on selling products before a particular end date
• Balanced scorecards – rewarding sales staff for both qualitative and quantitative performance.
• Monitor performance – of both the incentive and individual staff members to understand and mitigate the potential risks to customers.

If you would like more information of the FCA recommendations please call our team, who would be happy to help, on 0844 573 8000