Sales Performance Management in Retail Banking
- Measurement – What do you measure
- Target setting – How to set targets?
- Incentives – How to reward performance?
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.
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).
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: