Why banks should be rethinking incentives
The banking industry is undergoing significant
changes, prompting financial institutions to rethink their incentive programs.
In the past, banks focused on growing loans and branches, which is why
traditional incentives were tied to volume. This method of incentivizing
bankers has become problematic as banks face liquidity pressures while trying
to adapt to fluctuating interest rates. As the demand for non-interest-bearing
deposits grows, banks need to shift from outdated incentive programs to
sustainable growth strategies that retain bankers and offer shareholder value
through capital and risk-adjusted returns. However, this shift needs to be
intentional and well-considered from a technology and cultural standpoint.
Banks need to have clean and curated relationship data to fully understand their book of business and how it’s affected by the economic environment. Without this clarity, they risk offering incentives for products or services that neither resonate with customers nor generate meaningful revenue. Banks may consider partnering with a fintech to help with curation and provide incentive management tools. These tools should align banker rewards with shareholder returns by leveraging profitability data from an institution’s core and ancillary systems. This gives bankers a full understanding of client relationships, including their profitability, which is important when capital and liquidity are limited.
Many banks overlook how incentive programs impact their bankers. Expecting higher performance without providing the necessary tools sets bankers up for failure. By providing access to the right information and tools, bankers can make smarter decisions and optimize their performance. They should be able to delve deeper into client data, as well as track changes in the relationship on a weekly or monthly basis then make necessary adjustments. Additionally, incentive tools should offer transparency into how banker’s actions directly influence their compensation. Equipped with these tools, bankers will feel empowered to change and improve their behavior, knowing their work and contributions are acknowledged.
Incentive tools can also help banks measure, train, and coach their bankers. By integrating role-specific performance targets and goals into these tools, banks can more effectively identify areas for improvement and highlight bankers' achievements. This goes a long way in helping banks with retention and engagement efforts, as well as enhancing their team structures and market strategies to achieve sustainable growth with clear direction. Incentive tools can also be used for role-playing and training. For example, it can teach commercial lenders to become commercial bankers, with a deeper understanding of both loans and deposits. This not only prepares bankers for market fluctuations but also equips them to address a wide range of customer needs.
In addition to implementing incentive tools, banks need to be open to cultural change. Incentive programs should move from short-term, sales-driven incentives to long-term customer relationships. Bankers should be rewarded for meeting clients' overall relationship needs, not just for selling individual products or services. Along with recognizing the value of acquiring new clients, it’s crucial to reward bankers for deepening existing relationships. Strengthening existing relationships can be just as important for growing deposits as bringing in new ones. Bankers who strengthen existing relationships can help clients reach their financial goals while also increasing profitability for the bank. By incentivizing in a holistic way, bankers can move beyond transactional interactions and become trusted advisors.
Banks should reassess their incentive programs to align with the long-term success of their bankers and customers. They can foster a more relational approach by moving away from incentives focused on short-term sales and instead prioritizing those that strengthen customer relationships. Successful incentive program will provide bankers with the tools they need to better understand and serve their clients. By rethinking incentive programs, banks will have a stronger, more resilient banking model that benefits all stakeholders.
About Author:
Mac Thompson is the CEO and founder of White Clay, a fintech that guides banks and credit unions to build deeper and more profitable relationships.