Pay for Performance and Reputation Risk

An increasing trend in the financial services sector is “pay for performance.” This practice shows up in several formats:

  1. Commission – rep is paid a percentage of balances acquired
  2. Incentive – rep is paid per closed referral
  3. Bonus – rep is paid based on goal performance over a set period (per month, quarter, bi-annually, annually)

The premise of pay for performance compensation plans is, “you get what you pay for.”

The real challenge with most pay for performance plans is, “you get what you pay for.” But, at what cost are you getting these products or balances? There are no shortages of pay for performance plans that created significant reputation risk for the company. The highest profile was at Wells Fargo. Bank reps were adding fake accounts to a customer’s portfolio without the customer even knowing they bought another product. Shortly after this public relations nightmare calmed down, they were once again caught, putting insurance on collateral when there was insurance in place. In both of these scenarios, the bank reps were receiving compensation for placing these products, and their success or failure in selling products became the primary focus of their performance evaluations.

How can a credit union transition to a pay for performance schema without suffering from a huge reputation risk?

Start with your Mission Statement. Yes, Wells Fargo had a Mission Statement: “Our product: SERVICE. Our value-added: FINANCIAL ADVICE. Our competitive advantage: OUR PEOPLE”

In fact, Wells Fargo had a complete book of their vision and values that included high minded statements like: “Our ethics are the sum of all the decisions each of us makes every day. If you want to find out how strong a company’s ethics are, don’t listen to what its people say. Watch what they do. This is even more important in our industry because everything we do is built on trust.” In fact, in this vision and values book, the word “trust” is mentioned twenty-four times.

How does a company that says all the right things, get it so wrong?

Performance management can’t just be about production. It must also be about how employees treat each other and their members. If performance management is solely on production, the company is forcing an employee to live with a moral dilemma of, do I do what’s right for my customer, so I do what’s right for me, or do I do what’s right for the company. No employee wants to work with these decisions.

So, let’s make it easy for the employee. Balance production management with cultural management. Teach all employees the Mission, but also translate the words into actions. Always hire and promote according to the company values and reward employees who demonstrate living those values. Too heavy of a weighting on production yields terrible decisions and more importantly, creates a significant reputation risk for the company – ask Wells Fargo.

About Rich Jones

Strategic consultant and Keynote Speaker, Rich brings a deep experience in the disciplines of Strategic Planning, Marketing, Business Development, Digital Transformation, Data Utilization, Leadership Development and Cultural Alignment. A husband, father, runner, cyclist, beer drinker with a passion for life.

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