Yabber Global

Incentive schemes in financial service

The Royal Commission Report is impacting significantly on financial service firms in Australia as firms adjust their procedures to eliminate poor behaviours and create better consumer outcomes.  Although predicted to be far reaching, it was not anticipated the changes would have a radical effect on employee pay structures.  However, that has happened with the recent announcement that ANZ had scrapped individual bonuses to eliminate pay schemes that reward misconduct.

Regulators around the world have focused on such problems for many years.  As an example, the FSA in the UK [now the FCA] issued a consultative document in 2012 titled, “Risks to customers from financial incentives”.  Although the consultation was borne out of a desire to eradicate poorly designed sales incentives identified in the PPI mis-selling scandal, it applied to all UK FSA regulated firms.  The consultation provided guidance on features that increased the risk of mis-selling and provided leadership ideas on managing the risks and governance of incentive schemes.

Despite this guidance, there is evidence that firms continue to design sales incentives that reward staff even when poor customer outcomes result.  As an example, the notice that resulted in the recent Standard Life £30m fine identified flaws in the following areas (1) bonuses within the remuneration packages; (2) key incentive schemes; and (3) other incentives, including competitions and opportunities where staff could win additional payments or prizes.  The FCA stated that these schemes, “created a significant risk that call handlers would be improperly motivated to sell products, including annuities, in order to secure a bonus or other monetary incentive.”

The FCA also found that ‘second and third line’ oversight was inadequate, highlighting the low number of calls that were sampled by the second line and weaknesses in the process by third line internal audit.  For us, this highlights the common problem that exists when oversight processes are not independent.

Yabber provides independent oversight and we have built a reputation for ‘telling it as we see it’.  We enable firms to monitor 100% of their interactions with customers.  Our platform delivers improved compliance, identification of key risks, re-design of processes and measurement of staff capabilities.  To find out more or request a demo, get in touch.