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Sales Incentives: Who Really Pays?

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.     


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