Not
every product or service sells itself and those offering most products and
services devote substantial effort and funding to ensure that the desired sales
happen. In the financial industry, a firm’s offering of incentives to its sales
employees to push particular products has (rightly) come under fire and
increasing regulation to the point that many incentive programs have been
terminated or at least significantly limited. One
reason for the change is that although the firm compensates those salespeople,
the funds for that compensation ultimately come from the customers. Although it
is true of most sales, it is further complicated in the financial industry.
This is not only because customers may not understand that the product or
service costs more because of the cost of the sales incentives but more
importantly because the salespeople typically will not suggest, recommend or
offer other available products or services which are equally useful and very
often cheaper. This is a real concern where the seller – financial firm – is obligated
to act in the best interests of its customers and is required to make full
disclosure and not place its interests above those of its clients. Incentives
often mean the customer pays more than they should and likely gets less than
they should. The
underlying issue is the perverse nature of sales incentives generally since
they encourage a one- dimensional approach to sales – making as many sales as
possible to receive a reward, usually financial. A striking example outside the
financial industry is when the government intervenes with sales incentives as
it did with the food stamp program. The push on government employees to sign up
as many participants as possible, without regard to the intent and requirements
of the program or the actual needs of individuals, led to a huge increase in participation
in the program, the cost of its administration and of course the cost of the
benefits themselves. You probably know who paid for that – not the government
or its employees but the taxpayers. At
bottom, relying on sales incentives always creates winners and losers and you
shouldn’t be surprised that the entity offering those incentives is rarely the
loser. |