Efforts to design a simple, fair and effective sales incentive scheme
At Equity Insurance Agency (EIA), we use a bancassurance model to sell insurance through around 130 insurance officers located at Equity Bank branches across Kenya. When we reviewed their existing salary structure, we realised that the incentive scheme, an annual bonus, was subjective, did not incentivise the desired sales behaviour, and was not aligned with our overall business objectives.
In order to address these limitations, we re-designed our incentive structure using the following principles:
First, we ensured that the new incentives aligned with business objectives. EIA’s key business objective is to maximise revenues. As an insurance intermediary, our revenues are the commissions we earn. We noticed a mis-alignment here, since earlier incentives for insurance officers were based on premiums, whereas management was evaluated on commissions. Our second important business objective was to reduce administration costs, which varied by product categories (for instance, auto insurance involves more staff time for claims processing). Our third critical objective was to retain and reward high performing employees. Earlier, there was little differentiation in incentives between average and top performers, with bonuses varying from 0.5 to 2 months of base salary. The new incentive, on the other hand, is aligned with all three business objectives. It is calculated based on a mix of commission earned and product category, in order to drive productivity and promote a good product mix. It is also designed to enable high performers make as much as a year’s salary in bonus, if not more.
Secondly, the incentive structure needed to be objective and fair. Given the ways in which salaries have historically been established, salaries of staff at the same position and level varied depending on whether they had come up within the organisation or had been hired from competitors. Bonuses used to be calculated as a percentage of base salary, thereby exacerbating the problem. With the new model, we wanted to ensure that staff with the same performance received the same take-home pay (their base salary and bonus), negating the effect of different salaries. In order to achieve this, the new incentive scheme allocates a total take-home pay based on performance, adjusting the bonus based on the difference between this number and the current base salary. As a result, two staff members with the same performance could earn different bonuses but take home the same total pay.
Lastly, we wanted to make the structure transparent and easy to understand. When we started talking to staff about the new model, we saw that they found it difficult to visualise how much they would earn. They were used to being given sales targets and now we were allowing them to decide how much business to bring in, based on the bonus they wanted to earn. In order to ease this transition, we created an excel calculator for them to play around with and measure what they could earn. Staff could enter different commission amounts and product mixes to see how it would impact their bonus. This simulator effectively communicated the new model and helped gain buy-in. More importantly, it showed staff in very objective terms that they were in control of how much they earned.
This new structure and the associated tools have been rolled out and we are eagerly waiting to see the effect on productivity and employee satisfaction. If you have any feedback, particularly if you have tried something similar, please feel free to leave a comment or get in touch.
