white paper
How To Promote Ethical Practices Through Your Incentive Campaigns
The ethical issues facing the financial services business, the Sarbanes-Oxley bill and the recent investigations and prosecutions in the insurance industry have put the spotlight on incentive programs. Some people fear that these programs can be a hotbed of unethical conduct, such as steering people to buy financial instruments that might not be in their best interest or disguising illegal kickbacks for selling one product in favor of another.
Although industries affecting the livelihood and security of people are subject to particular scrutiny, any business can benefit from developing motivation strategies that promote ethical, productive behaviors that create a win-win for the company, its salespeople or channel partners and, ultimately, the customer.
This Executive White Paper provides a research-based approach to constructing incentive programs that encourage positive behavior and is designed to be of use to any organization, whether or not it is in the financial services or insurance industry.
Table of Contents
Understanding the ROI of Ethics
Objective Setting
Establishing Performance Measures
Training
Communications
Special Recognition
Measuring the Results
Special Reports
How to Avoid Sandbagging
Balancing Pleasure With Business When Selecting Travel Awards
A Note on the Disclosure Issue
Understanding the ROI of Ethics
Organizations that want to build profitable, sustainable relationships with customers and channel partners know that ethical practices almost always reinforce, rather than detract from, customer loyalty and retention. Using deceptive pricing tactics, knowingly providing inferior products, or pushing someone to buy something that isn't needed might make a short-term sale, but it can have cascading negative consequences in terms of customer dissatisfaction and negative word of mouth that can more than outweigh whatever benefits the salesperson or organization got from the short-term sale.
The main motive behind designing positive performance improvement programs lies in a desire to generate enhanced long-term customer loyalty, not just the satisfaction of having a clean conscious. No organization can hope to foster positive performance strategies and actions in its middle management and rank and file if its top management fails to understand the economic benefits of ethical business practices. Any performance improvement planning process starts with an honest self-appraisal to make sure that promoting ethical goals is indeed your organization's underlying motive.
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Objective Setting
The next step involves your goals. According to a recent Boston Consulting study, the nation's most unethical publicly held companies set performance goals on average 250 percent higher than ethical competitors. Setting unrealistically high goals is the best way you can make sure that your salespeople and channel partners potentially cross the line to meet your expectations. Effective sales forecasting and objective setting is not based on what shareholders or top management expect, but on a realistic appraisal of what's possible based on the following factors:
Past history
What type of sales growth has your organization or product group achieved in the past? What specific factors make it possible for you to do better this time?
Opportunity
What specific opportunities make you think you can hit the goal? Is it a better mousetrap, more competitive price, creative promotion, weak competitor, killer new sales team, big advertising budget? Whatever it is, put the reasons for your forecast in writing; it will help you later on when you need to analyze why you succeeded or failed.
The involvement process
You or your top management may believe you can achieve a specific goal, but what about the people who have to get the job done? According to the Master Measurement Model, a tool developed by the American Quality and Productivity Center for the SITE Foundation, (1) goal-setting is greatly aided by use of what's called the Nominal Group Technique. This process uses an outside trained facilitator-perhaps from your human resources department, perhaps from an outside consultant-to assess the what your target audience feels is needed to achieve a particular goal, and, as a by-product, whether or not they believe the goal is reasonable. Having management present will likely result in posturing that defeats the process; on the other hand, the facilitator has to make sure that nothing said creates any false expectations about what management might or might not do.
The process usually involves selecting about five to eight representatives of your target audience for a half-day meeting during which the facilitator asks a series of questions about the objectives to double-check your assumptions. It does little good to ask outright if the objectives have merit because normal salespeople will view any tough goal with skepticism. The better approach asks: What goals do you think are feasible? What obstacles currently exist to achieving that goal? How can the organization reasonably maximize the chances of attaining an aggressive goal? What actions, if performed more consistently by the sales team, could improve the chances? What additional support from management will bolster their efforts? What training or sales tools could help?
Without specifically asking, a facilitator should watch for warning signs that the sales team lacks the motivation, capability, or buy-in necessary to achieve aggressive goals.
If the facilitator's report comes back indicating serious deficits in any of above areas, you should consider reassessing your objective or putting in place a strategy to address the potential problems.
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Establishing Performance Measures
The measures used to qualify people for rewards and recognition will have a great bearing on whether you promote unethical behavior. Here again, the Master Measurement Model provides invaluable insight into proper program structure.
Multiple measures:
Using more than one performance measure can make sure your people stay focused not only on the goals but on the steps they can take to achieve the goals. Usually, to avoid confusion, the report asserts, you need no more than three measures in total: one to measure the actual goal (the performance or outcome goal, such as a 10 percent sales increase) and two others related to the goal known as process measures-steps people can take related to achieving the outcome. You can use one of these goals to introduce an ethical check, such as measuring customer satisfaction after the sale and repeat business (if applicable). This puts the salespeople on notice that management values customer satisfaction and retention, which likely won't result from a high-pressured or deceptive sales process.
Weighting measures:
The report further urges that measures be given weight to reflect their relative importance. Under this scenario, qualification for rewards and recognition might come 50 percent from achieving the sales goal, 25 percent from level of customer satisfaction rating and 25 percent from some other related measure, such as number of calls or presentations made.
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Training
Many performance improvement efforts fail to integrate training to make sure salespeople have the skills to maximize sales opportunities without leaving customers feeling pressured or manipulated. Face-to-face, Web-based and printed training materials and quizzes provide an ideal platform for equipping salespeople to find ways to consult customers rather than manipulate them. The most effective, sustainable customer relationships occur when customers feel trust(2), and the greatest trust results when customers feel guided rather coerced.
There's nothing wrong with a salesperson applying a little pressure when it is truly in the customer's self-interest to buy-we all need a little shove from time to time to do things that can benefit us. But pressure to buy unwanted or unneeded products or services invariably leads to buyer's remorse, with the hidden and yet real impact on repeat business and negative word of mouth. Training should address not only the deficiencies in capability identified by the Nominal Group Technique, but also to reinforce the positive behaviors desired to achieve not only a short-term sale but long-term satisfaction, positive word of mouth and repeat business.
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Communications
Like training, the marketing program to support your program provides an ideal opportunity to reinforce the positive values you want to instill in your organization, and might even make unethical salespeople think twice. Few people want to run the risk of outright disobeying organizational policies publicly promoted time and time again in an atmosphere where no one doubts management's intentions. In fact, communicating positive values creates a level of awareness in the organization that makes people more alert to identifying and reporting potential abuses.
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Special Recognition
It almost always makes sense during a motivation program to reinforce values along the way in order to create a buzz within the organization and to remind people of the goals and best ways to achieve them. Spot, informal recognition programs given to people whose actions embody the organization's values reinforce yet again the message that management means business when it comes to achieving objectives the good, old-fashioned, honest way. Of course, the winners of these spot awards should be trumpeted in the program's communication program. Example: A call center manager might single out a sales employee for special recognition after overhearing him or her discouraging a customer from buying a feature they clearly can't use. This sends a powerful message to the entire call center that it does no long-term good to sell people things they don't need, and that the best salespeople instead try to identify what people do in fact need or can benefit from.
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Measuring the Results
If you have set realistic goals, identified the obstacles or opportunities related to their achievement, established self-supporting measures, incorporated targeted training and communications, you have done everything possible to achieve your goal. But to learn the most about your results, you should not just measure the outcome of your primary performance measure, such as increased sales. You can equally benefit by looking at the process measures, those other measures used to assess the actions taken by your salespeople to achieve the goal. If your performance measures hit the mark, but you fell way short on customer satisfaction or other measures, you have reason to expect that other factors contributed to your success that merit further investigation. The reason may simply lie in the fact that you overlooked other factors that contributed to success, or if no other such factors seem apparent, you might have cause to question how indeed your sales team achieved the goal-especially if your customer satisfaction ratings come back low.
In the end, ethical behavior is much more likely to occur in organizations that value long-term customer retention in favor of hitting short-term sales goals.
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(1) Master Measurement Model documents how to develop measurement criteria for nonsales employees in incentive programs. Prepared by the American Productivity and Quality Center for the SITE Foundation.
(2) "Trust in Close Relationships," John K. Rempel, John G. Holmes and Mark P. Zanna, Journal of Personality and Social Psychology, 1985, Vol. 49, No. 1, pp. 95-112.
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How to Avoid Sandbagging
One of the most prevalent forms of problematic behavior related to incentive programs involves the practice of sandbagging: encouraging customers to defer or speed up purchases in order to help salespeople qualify for incentive compensation or other rewards and recognition. While this practice has less negative consequences than pressuring people to buy something wrong for them, it distorts financial planning and results in making inappropriate incentive payments.
To counter sandbagging, it's useful to understand that performance improvement programs differ from compensation in that they represent, in effect, internal marketing efforts to achieve a special goal through specific behaviors. This makes them much like most other marketing programs, which often are timed to support specific buying periods rather than financial fiscal periods.
As such, it pays to treat these programs like marketing campaigns and use the element of surprise, so that salespeople have no way of knowing precisely when a qualifying period will begin.
Of equal importance: communications and training that reinforce management's commitment to selling products in the best interest of the customer first.
Salespeople coming toward the end of the campaign will think twice about pressuring a customer to buy early if they know that management will be watching for aberrational order activity or conducting post-sale customer surveys to assess client satisfaction.
A way to avoid sandbagging completely is to run programs back-to-back so salespeople do not have a period of time to defer sales in.
They reap the rewards of incentive programs on an ongoing basis so they feel no need to defer or speed up sales within any given time period.
Balancing Pleasure With Business When Selecting Travel Awards
When it comes to selecting travel incentives, perception can be as important as reality. Legitimate travel incentives can be tarnished and when that happens, your efforts could backfire.
Travel programs should be designed to reduce the "boondoggle-factor" and avoid appearring decadent or wasteful.
The programs should unapologetically incorporate business meetings in order to communicate corporate vision, mission, marketing initiatives, product/service development, etc.
A Note on the Disclosure Issue
No situation puts salespeople in a more awkward situation with clients than some rules in the financial services industry requiring disclosure of incentives received in return for selling one financial product versus another.
In fact, when is the last time you heard salespeople disclose to you that they will receive such and such an incentive? But they should. Because this type of honesty can open the door to new opportunities, as well as build a more solid foundation of trust between salesperson and customer.
Disclosure is even more powerful when it precedes an industry mandate to do so. Disclosure can actually help build a relationship when handled properly and ward off potential future entanglements.
What consumer would mind a salesperson starting off a presentation with the following statement: "I will be presenting to you a number of options based on your needs, and each one offers us one type of incentive or another for promoting their products, as you can well imagine. Please feel comfortable to ask me the specifics on any product I recommend, but rest assured that your best interests come first, because my interests are best served over time by making you a satisfied customer."
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