Sales Performance Management in Retail Banking
Context
Performance management for retail banking branches and sales staff is a key lever not only in lifting performance but also encouraging greater customer centric behaviour (for banks headed in that direction). Optimising frontline performance becomes especially critical in maturing markets where banking penetration is reaching saturation and real estate becoming very costly.There are 3 components to get right:
- Measurement – What do you measure
- Target setting – How to set targets?
- Incentives – How to reward performance?
Common practices observed . . . and issues with them
1) Measurement
Volume based and/or accounting based metric are still most commonly used (e.g. dollar volume of loans or deposits originated, accounting revenues) as a measure of performance. This typically contributes to two issues:
- Misalignment of sales effort with real value to the bankg. a product line or sub-product may give a large in-year volume but compared to others the multi-year risk adjusted returns to the bank may be much smaller, or vice versa. Ideally the relative value between different products that the sales person sees is aligned with real value accruing the bank; this will ensure that the salesperson’s optimal trade-off between sales effort and results across different products are aligned to maximising value to the bank.
- Sales at the expense of retention for certain roles in the bank. Depending on the design of the sales-service coverage model, lack of measures for retention biases frontline behavior towards product push at the expense of service and retention.
2) Target setting
Frontline sales targets are often set based on top down targets (cascaded down in targets agreed between CEO and Retail Head with product head inputs) adjusted for some historical performance and negotiations. There is little factoring in of local market potential or branch specific context in setting individual branch targets (e.g. how rich is the local area, duration of time in market, resourcing, competitive dynamics).
Furthermore, product by product targets are typically very prominent, especially in product-led organisations where each product line in pushing for higher sales believes that the way to influence the frontline is by setting higher and higher targets.This approach to target setting results in a few drawbacks:
- There is no measure of real value add e.g. branches that do well could either be due to efforts of the team or a very advantageous local areas where the branch will outperform even if the “sit there and do not much”.
- Overall branches are motivated to just ‘satisfy’ as over-performance leads to higher targets.
- The myriad of high product targets limit the ability of the salesteam to focus on selling products that has most natural demand. Much effort is spend on chasing sales to meet all the targets rather than what the customer wants. Philosophically, the more targets there are, the greater the chance of getting them wrong and hence result in wasted sales efforts.
3) Rewards
Typically very complex payout function with caps, floors, multiple hurdles / penalties are observed, often a result of piece meal adjustments to the schemes over time. Or on other end of the spectrum very flat payout functions are observed.Key issues with such systems are:
- Complex systems often lead to gaming opportunities, which may lead to counterproductive behaviour e.g. delaying sales to next period, exchanging bookings with colleagues, etc.
- The myriad of penalties may result in the sales person giving up selling in a particular period if he or she thinks there is little chance of qualifying for incentives, where in fact any sales however small benefits the bank.
- Flat payout functions on the other hand, unless underpinned by a very strong organisation culture and a sense of doing the right thing for the bank (there exist but in very few banks, and can’t be easily replicated), often results in lack of proactive sales.
NPV aligned points based system as a better approach
A points based incentive system aligned to net present value of products is arguably a better holistic system, with targets set based on local area potential and branch specific factors. This ensures that each individual salesperson’s actions, in optimising his or her personal ‘effort-reward’ equation between selling different products, will naturally result in maximising value to the bank.
Illustration of a “points” based system

Features of such a system includes the following:
- Explicit subsidies implemented through the points based system to account for strategic products i.e. boost points awarded for such products e.g. for product campaigns each product line can be given a ‘budget’ of sales and, while more permanent overrides on longer term strategic products can be consciously decided by management.
- Small service credits to encourage retention and service, set in proportion to frontline effort between sales and retention for each product.
- Simple linear payout function with relatively steep slope (may be graduated) to ensure pay for performance
- Minimal / no individual hard product targets; small payouts starting from low hurdle
Ultimately, if implemented well, the points based system should lead to real changes of frontline behavior. Key behavioural changes include the following:

Obstacles to implementation
With the ultimate objective of bringing about behaviourial change, implementation is just as much if not more, about mindset change and communication as getting the technicalities right. Common mindset obstacles that need to be addressed during implementation include:
- Product (especially in product led organisations), who is used to leading and hence influencing much control over targets and incentives, needs to come to terms that by foregoing some autonomy over individual product targets and incentives it will result in overall better performance for the bank.
- Idea of calculating product NPVs accurately being very difficult; here NPV is just the concept where what is important is a consistent approach applied across to get numbers that are ‘directionally accurate’ rather than absolutely accuracy.
- Frontline themselves need to come to terms that with a measure of true contribution, there will be ‘winners’ and ‘losers’ viz-a-viz the old system.
- Management and finance may have concerns of higher incentive payouts; the new system can be calibrated to keep the total incentive pool the same as previous and additional incentives only paid for uplift in sales