A Differing View: Incentive Programs Do Work When Structured Properly

I read Chuck Cockburn's op-ed in the Dec. 6 issue of Credit Union Journal. In that article, Mr. Cockburn answers a credit union question regarding the consideration of incentive plans to encourage the sale of products and services by saying, "I do not recommend implementing an incentive program." He goes on to suggest that a better alternative is to improve processes, enhance teamwork and communications, improve pride in workmanship and eliminate barriers between departments and teams.

Mr. Cockburn's point is precisely right. He references Dr. W. Edward Deming's premise that these are the types of changes that improve productivity, quality service and morale. If only the American auto industry had listened to Deming! Instead, he took his ideas to Japan and was instrumental in the amazing growth of quality car production that ultimately swept the world.

I would also agree with the point that Dr. Deming and Mr. Cockburn make when they say that pay is not an effective motivator. In my 40 years of experience in the executive compensation and benefits business, it is clear that people are motivated by values. They are rewarded with compensation.

But, that does not lead me to agree with Mr. Cockburn that incentive plans are ineffective and, for the most part, create negative results and game the system. While I do agree that it is not usually productive for employees to compete for rewards, I also am confident that executive incentive plans, with appropriate and relevant performance linkages, can be very effective reward systems that keep the executives' eyes on the target.

In addition to Mr. Cockburn's suggestion that the reader study the works of Dr. Deming, I would recommend that a good resource is "The Ultimate Question," by Fred Reichheld. Reichheld suggests that there is one question you can ask your members "that is so closely linked to their behaviors that it is a practical surrogate for what they will do."

The ultimate question is, "How likely is it that you would recommend this credit union to a friend or colleague?" Potentially, you may hear positive responses from "promoters," neutral responses from those who are "passive" and negative responses from those who are likely to be "detractors." A simple equation-Promoters (P) - Detractors (D) = Net Promoter Score-can be derived from the collective answers that yields what Reichheld calls the Net Promoter Score. In concept, it's that simple, but it takes some effort to learn how to ask the question in a way that gives you "reliable, timely, and actionable data."

The point is that good member experiences lead to repeat and referral business and ultimately distill to positive financial results. These results can be measured in a way that lets you build incentive compensation programs that are based on the things that move your credit union toward successful achievement of its strategic goals.

So, my conclusion is different than Mr. Cockburn's. I believe that credit unions should, indeed, consider incentive plans for enhanced performance. But, they should understand that performance is based on values, communication and teamwork that translate into an exceptional member experience. The metrics for compensation should be based on building and maintaining that exceptional experience.

Alec Berkman, CEO
Executive Compensation Solutions,
Covina, Calif.