Employee Incentive/Bonus Design for Community Banks
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Incentive plans, designed correctly, generate huge profits with a huge ROI! The idea is to pay-for-performance in such a manner that the participant and the bank are significant winners!

Having evaluated well over 300 community banks methods of "paying for performance", incentive designs are vastly different and, to a large extent, do not serve there intended purpose! Incentives are always designed to reward - kudos for intent! Rewards should be great for the designated employee, while being even better for the bank. Therefore, the bank's incentive is to help the employee perform to his or her optimum level. That makes sense!

The 6 Core Principles for Successful Incentive Plans

  1. ALL employees should have some form/s of incentive/s to mold the behaviors you desire. For example, many banks have a sales incentive. Back office/operations employees have a tendency to be disinterested in incentives because they have little customer contact. To some extent, that is true! But, what are the behaviors we desire from this group? Operational accuracy? Team work with the front line for the benefit of the customer? Telephone skills? Product knowledge? There is no shortage of behavioral excellence we can expect, train for and measure success in some way.

    What about the Receptionist, Call Center, Tellers, CSR's and Personal Bankers? What about middle-management? Behavioral-based incentives achieve results! Are Branch Managers, Supervisors and Department Heads consistently leading, coaching and being held accountable for directing the performance of their staff? Most often - no! Designing effective incentive plans is a big part of enhancing and measuring performance! Providing the tools and skills to effectively perform is uncommon, but a "have to"! Rewarding managers for measurably succeeding in "managing" makes common sense, but is rarely a part an incentive plan! How about Loan Officers and other Business Development Officers? They range from super star rainmakers to mediocre reactive loan makers to bad hires. The difference in their performance can range from consistently exceptional to ridiculously non-existent. Incentives should be designed with a focus on rewarding defined superior performance! These are the people that are responsible for "bringing in quality business" and retaining it. They should have a much bigger impact on the growth of the bank and its' bottom line than most do today!

  2. Caps - NO! Why would we create an incentive to reward the behavior we desire, yet have a STOP button on the reward! Caps are far too prevalent, especially for Loan Officers and other Business Development Officers. It makes the rainmaker slow-down and it compresses the difference in incentive payout between great performance and mediocre performance! At the staff level, "helping" customers fulfill their financial needs should be expected! Your tracking system should be able to identify who is doing what. Remember - quality first! But, no caps! Design the incentive to serve the greater good of the customer, employee and the bank, but not for every exception. Deal with those, as exceptions occur.

  3. Quotas From a sales perspective, quotas tend to be artificial expectations set by management based on a number a person in a specific position "should be able to achieve" or a number calculated by management to meet profitability needs and spread amongst the employees in the pool. If quotas are unrealistic for the individual or the job description and the individual does not meet the quota, what happens? No or low bonus? Does the employee give up? What does this do to the overall bank culture? Assuming quotas are not realistic and most employees can't and don't meet their quota, the negative implications to your overall culture may take its toll. Be very careful with quotas!

  4. Goals Defined as realistic! The idea is to select a goal that can be easily achieved, assuming the employee has the skills to do so. And, far too often, it is assumed the employee has the skills and doesn't! If not, don't kid yourself. Skills matter! Fix it! The big picture objective is to create and maintain a winning culture throughout the bank, pay for performance and continue to improve the culture for the benefit of employees, customers and the bank.

  5. Frequency Remember, you are trying to reward for the behavior you desire and provide long-term value to the bank! The incentives for staff employees are often based on cross-sells, referrals and customer experience, both internally and externally. Consistent repeat performances are best achieved with monthly payouts (quarterly, if you have to). If your tracking system doesn't easily calculate monthly or quarterly pay-outs, get a new tracking system - it's that important! See more about Bank Service and Sales Tracking Systems by clicking here.

    Business develop incentives are typically based on net new loans, quality loans and new deposit business. Pay monthly, if you can, for the same reasons noted above. If monthly is not possible, quarterly is acceptable. Year-end incentives and bonuses significantly reduce the intended impact, coaching opportunities are lost and results suffer more than imaginable. Some bankers even consider profit-sharing and Christmas bonuses as incentives. Not so, in the eyes of the employees! It is an expected employee benefit, that's all!

  6. Celebrate Success! It's an incentive, too! Believe it! Most employees are not motivated primarily by money! Everyone is motivated by positive recognition, especially if the recognition is specific to their actions. Celebrate success with your successful employees - frequently! It breeds better results! See Recognition for more about this subject.

For more information, call John Cotton or Lisa McDaniel at
800-943-9638, or email us at: