Incentives and risk

We are all the same. I don’t care if you are a saint or sinner. Incentives will gnaw away at our morals and ethics.

The kids and the marshmallow test makes us all smile. The deferred gratification often collapses under the pressure of delicious marshmallow. Even those who succeed can be seen to have had their willpower tested.

We are just an advanced breed of monkeys on a minor planet of a very average star.
Stephen Hawking

Few have sympathy for the banks in the recent spate of miss-selling incidents. While I’m not sympathetic to the organisation, the individuals were placed in a position where breaking rules carried low risk and high reward.

Our brains are wonderful things we will rationalise acting unethically as ‘bending the rules’, ‘everyone does it’ and other excuses. From the outside others would be judgemental, from the inside it will be rationalised.

the money was resting in my account
Father Ted Crilly

How do we incentivise without bad behaviour

Good Governance. Identify the aspects of an incentive scheme that increase the risk of behavioural conduct issues. Review frequently.

Clarity. Being crystal clear on what is and isn’t acceptable. Avoid meaningless sentiment (“act with integrity”) and use concrete statements (“product is unsuitable for X”). This makes it more difficult to rationalise bending rules.

Emphasis on quality. Ensure that schemes incentivise the quality and compliance of a sale not just the volume.

Claw back. The ability to take back incentives if issues are identified. This is also a great metric to track as claw backs are an indication of conduct risk becoming more widespread.

Capped or decreasing incentives. This prevents sales ‘milking the cow dry’ as each additional sale has diminishing returns. Inappropriate behaviour tends to happen at the higher end of maximise incentives.

Deferral of incentive payments. Deferring payment allows for more time for issues to become apparent before rewarding.

Monitor. Good monitoring of patters for individuals receiving incentives, particularly those paid the most and those who are most at risk.

Conflicts of interest. Identify your incentivised people and those operating key controls. Ensure there is no conflict here. Sales managers are often operating the controls that are managing the very risks they are incentives upon.

Additional controls. When inappropriate behaviour is identified, add extra controls. This requires effort as much of the behaviour happens in conversation.  Monitor calls, use mystery shoppers, seek customer feedback.

Learn. When inappropriate behavior is identified. Learn from it. Don’t seek to be overly judgemental. If someone did it, the system allowed them to do it.

Teach a man to fish and he will fish till satisfied. Incentivise him and he will fish till there are no fish left for tomorrow.
Alex Hollis

Leave a Reply

Your email address will not be published. Required fields are marked *