Mid-way through the season my son asked me for a new phone. Because I’m not as skilled as his mother at saying “No,” following several weeks of nagging I made one of those spur of the moment, ill-conceived parental promises. “If you score a hat-trick between now and the end of the season you can have one.”
Given the season they’d been having I thought I was on pretty safe ground. Besides, what was the worst that could happen – my son would try that little bit harder and help his team scrape a much needed win?
So – did Dad’s little incentive scheme have the desired effect or were there unintended consequences? In summary, no and yes! Some of the most noticeable changes in behaviour were:
- My son was never the most generous team player, but now he stopped passing altogether in favour of speculative goal attempts from all pitch positions (running back to help the rest of the team was another casualty of his new found focus).
- His team mates started to get a bit resentful and some of them stopped passing to him.
- The resentment even spread to some of the other boy’s parents who were getting grief from their kids about my son’s potential bonus and the lack of theirs.
So what’s all this got to do with effective collections?
Well, in the Advisory team we spend a lot of our time reviewing the effectiveness of creditor’s collections and recoveries operations. In the same way as my well-meaning incentive scheme didn’t necessarily drive the right behaviour in my son (or help his team), we see numerous examples of incentive schemes and structures within collections operations having unintended consequences. For example:
One creditor we worked with boasted about their high collection agent retention rate and ease at which they recruited new agents from a competitor down the road. This was linked to the fact that their agent remuneration package was heavily weighted towards a relatively high basic but with limited scope to earn commission for over performance. It transpired that all the best collectors were working for the competitor who offered a lower basic salary but where the OTE was much higher.
In another creditor we saw the best performing agents were those who were automatically writing-off a debtor’s fee and interest on every call (doing this counted towards the agent’s revenue target. It was meant to be only permitted as a last resort but the absence of appropriate checks and MI meant that the best performing agents were exploiting this loop hole).
Another organisation we worked with offered no commission scheme at all to collection agents on the basis that, “The Union doesn’t like the idea of some agents earning more than others at a certain level.” The resultant collection rates were poor.
On another, call handle time was a key measure without appropriate control, we found that some agents were hanging up on calls at the end of the day to hit their target.
What are our 6 tips for an effective collections incentive scheme?
1. Ensure incentive schemes are aligned to company objectives
In our experience, measuring agents across a series of broad categories of behaviour which drive a balanced incentive scorecard works well and ensures alignment with broader company objectives and the right agent behaviours. The combination of behaviours we see agents measured on most commonly are effectiveness (e.g. amount collected), efficiency (e.g. volume of work carried out/productivity) and quality (e.g. adherence to process/compliance).
2. Build flexibility in to the scheme
As the business priorities change (or agents get wise to the limitations of the existing schemes!) incentive schemes need to be sufficiently flexible to encourage a modification in agent behaviour where required. For example, in a certain month the business focus might shift to be more on cash collections at the expense of average handling time and the way agents are incentivised should be modified to reflect this (the balance scorecard helps with this).
3. Ensure schemes are realistic
We’ve seen examples of incentive schemes with ‘entry criteria’ which are either very broad (i.e. more or less everyone qualifies) or overly stringent (very few agents qualify). Both can be a disincentive. The trick is calibrating any qualifying criteria over a few months to ensure the schemes are balanced and realistic.
4. Ensure scheme provides a genuine incentive
Top collectors are ambitious and enjoy success. In our experience good schemes will enable top collectors to earn twice what a poor one earns (but they will collect 3 to 5 times as much).
5. Ensure that the right MI is available
Good management information ensures that performance can be monitored and managed at all levels of the organisation and that agents have full visibility of their performance on a regular basis.
6. Manage poor performers
Consistent poor performance needs addressing through training, coaching or moving them to a more suitable role. Often, those who work in customer services aspire to the incentives and rewards of collectors but find it difficult to make the transition in behaviour required.
And, as a foot-note to this story, you may be interested to hear that my son didn’t get a hat-trick. He did, however, get a new phone, but only after having helped with some jobs around the house and so, don’t worry, my parental integrity remains (more or less!) intact.
By Charlie Horner, Lead Consultant, TDX Group