Compensation – particularly variable compensation – for the BFSI sector has always been a hot button – since the two decades I have been plying this trade. Whether it is public outcry against “fat cat” bonuses to Investment bankers or disproportionate compensation in stock to CEOs which encourage short term quarter-on-quarter behaviour or indeed the perverse bonus structures that causes “whales” to camouflage billions of dollars of trading losses, the mood, more than ever before, is one of moral outrage.

In all this brouhaha, an area less focused on, is rewards mechanisms for frontline staff – Folks at the branches, financial advisors, relationship managers, sales officers and their ilk. Typically, these folks get a variable pay, either on a monthly or quarterly basis, based on targets achieved. These targets tend to have a topline focus usually – Rc.cr of loans disbursed, credit cards issued, account balances in current accounts/savings accounts, or volumes/revenues of third party products sold to customers – be it mutual funds, insurance, structured notes or similar. Now here is the rub – while these schemes are put in place to encourage “productivity” and “sales”, the unintended consequence is that it sets up a mechanism that encourages the wrong behaviour – forcing products on customers who may not need them, opt-out products rather than opt-in, laxity in credit appraisals for sanctioning retail loans, and the one being talked of the most nowadays – selling mutual funds and insurance without a proper needs or suitability analysis, and the resultant customer clamour around mis-selling.

One approach which Banks and Insurers are increasingly taking is to cut out the obvious outliers – foreign trips, white goods , disproportionate front-ending of incentives etc. Most have also introduced quality metrics – NPA rates for example, or renewal percentages of insurance etc as some sort of gate criteria to qualify for the variable compensation.

But this is merely trimming the hedges.

If public consensus is that CEOs and CXOs , Fund Managers and Investment bankers behave and run their companies according to how they are bonused, why would we believe that tinkering around the edges will dramatically change frontline behaviour? In my humble opinion, what gets measured (and rewarded), gets managed. Across the org.structure.

So what is the way out? Some folks are beginning to take a fresh – and what some may call – revolutionary relook at this. Ashok Vaswani at Barclays UK for example, has announced that the only metrics his frontline bankers will be paid a bonus /variable comp on, is on customer service and relationship metrics. Interesting? Definitely. Doable? Yes. Though boat rocking. The challenge is of course how to quantify a touchy-feely intangible metric like client satisfaction. But I am sure that with effort, that can be solved for. The more challenging equation to solve for , is of course, how to link longer term value creation Metics to compensation. Of late there are plenty of studies that prove correlation between specific leading indicators – client retention, frequency of transactions, quality of book managed et al, and what creates stakeholder value. How about some baby steps in this direction? The thought is refreshing, the intent laudable. And may Ashok’s tribe increase. If we are all in agreement that something needs to be done , then now is as good a time as many to make a start.