I used to think that banking was an industry in which people were willing to share ideas based on the philosophy, "The one thing I can't fight is a stupid competitor who gives away his bank."

After seeing the responses to our latest contest, on incentive programs, I'm not so sure.

A column on Dec. 31 discussed how incentive programs can backfire. Service representatives may neglect real customer problems if they are judged by how many customers they can handle per hour. And incentive programs can lead to the ignoring of opportunities for bank profit if they involve referring the customer to another area where someone else would get the bonus.

But incentives have a major positive role, too. They are ncecessary to attract and retain the highly motivated salespeople who demand immediate rewards.

This was our contest: Who has the best idea for incentive programs that are useful and positive without negative backlash?

Largely, the responses provided principles rather than specific ideas other readers might use.

Tom Sayles, recently retired as chief executive of New Jersey's Summit Bank, reported that the best incentive program he remembers rewarded tellers for referring customers to the right platform officer or other employee for a service they were not already receiving from the bank.

He admitted that this takes teller time and can annoy people waiting to do their banking. He said, however, that the personal interest shown to the customer who is then given the teller's card as a reference to the other employee is well worth it, especially since it makes the tellers far more interested in knowing the customers and cementing their bank relationship.

As for loan officers being compensated for putting loans on the books that later go sour, Mr. Sayles said he avoided that problem simply by providing rewards only for loans that remain highly rated two years from the date they were made.

But what about new ideas for other community bankers?

One interesting response came from David L. Peterson, president and chief executive of Goldleaf Technologies, a bank-affiliated software firm in Hihira, Ga.

Mr. Peterson described an incentive program that he consistently advises his clients to try. he calls it the yearend auction.

It works like this: Throughout the year, bank mangers will distribute "play money" to employees who do well and help the bank accomplish and surpass its goals. The money can be awarded by individual managers or through a team-oriented approach, as long as managers make sure the distribution of the "money" is fair and equitable.

At the end of the year, management buys a variety of items - electronic equipment, gift certificates, etc. - and auctions them off for the scrip at a party. Mr. Peterson reports that in each instance that someone used this incentive method, it boosted morale, was a load of fun, and ended up costing the bank less money that it would have spent on monetary incentives.

"All that is needed to make this work is some play money and a management team committed to making it work," Mr. Peterson writes.

Hunter Hollar, president and chief executive of Sandy Springs National Bank, Olney, Md., reported that his bank uses a "incentive compensation for stakeholders" method in which incentive payouts are made based on a mathematical formula in which an employees actions are gauged against the bank's overall growth, profitability, quality, and productivity.

By including all four indicators, "the incentives are long term rather than short term in nature," Mr. Hollar writes.

But what about a winner?

We at American Banker take the responsibility of anointing a president for the day of Schmidlap National Bank very seriously.

We still hope others will provide useful specifics to help your colleagues make the most of incentive programs. In this hope, our electoral college will put off convening for a few more weeks.

Mr. Nadler, an American Banker contributing editor, is professor of finance at Rutgers University Graduate School of Management.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.