Toss The Incentives, Keep The Performance

Power Financial ditched its employee incentive program in 2015 to improve the lives of its employees and members.

 
 

CU QUICK FACTS

Power Financial Credit Union
Data as of 03.31.17

HQ: Pembroke Pines, FL
ASSETS: $652.1M
MEMBERS: 33,448
BRANCHES: 5
12-MO SHARE GROWTH: 15.2%
12-MO LOAN GROWTH: 16.6%
ROA: 0.27%

Allan Prindle doesn’t mince words when asked why Power Financial Credit Union ($652.1M, Pembroke Pines, FL) removed individual incentives for credit union staff.

“Incentives are destructive,” the CEO says. “They’re a cancer to the organization.”

The south Florida institution implemented the change on Jan. 1, 2015, and has not offered employee incentives since.

What Happened?

Prindle was president and CEO of Pan Am Horizons Federal Credit Union when the institution merged with Power Financial in late 2006. He became CEO for the surviving credit union in April 2007.

The CEO immediately recognized he inherited an institution that came with a strong, baked-in culture of employee incentives. When the recession hit, Power Financial cut the incentives, but as the economy rebounded, so did the incentives.

Staff were incentivized for just about everything, says David Tuyo, the credit union’s CFO and COO, including GAAP, credit life, credit disability, number of products sold, number of cross sales, and number of referrals. But one thing was missing from the incentive structure.

“Nothing had to do with trying to improve the member’s life,” Tuyo says.

As a credit union that holds strong to its core values — among which is to provide advice for today and for generations to come — incentives run counter to its mission.

“The most basic understanding of incentives is simply, ‘do this, get that,’” Prindle says. “But at the cost of what else? They don’t empathize with the member. They simply become operant and conditioned into ‘do this, get that.’”

Prindle admits incentives do carry short-term financial value to an institution. But in the long-term, there’s greater benefit to the members, staff, and FI — including better resource allocation and encouraging a culture of service — if the credit union removes incentives.

“We were running a whole engine dedicated to tracking and paying incentives,” Prindle says. “The resources and time we were taking was not value added.”

For many employees, too, removing incentives offers a relief.

“They no longer have the pressure to meet quotas,” Prindle says. “I think people perform better when they don’t have that pressure. The results show it so far.”

According to data from Callahan & Associates, loan growth since the start of 2015 has remained at or higher than the average posted by credit unions in Power Financial’s $500 million to $1 billion peer group. Share growth has jumped nearly 15 percentage points in that time frame.

In addition, according to CFO and COO Tuyo, the credit union’s loans per household has increased more than 50% and loan applications have more than doubled. What’s more, scores on internal satisfaction surveys have increased by approximately 20%.

“We’re spending more time asking how we can satisfy their appetite rather than asking, ‘Do you want fries with that?’” Prindle says.

Click through the tabs below for a deeper dive into Power Financial’s financial performance. Click on the graphs to view in Peer-to-Peer.

While Power Financial's average member relationship has grown steadily over the last five years, since the credit union eliminated incentives the metric has grown by nearly $4,000 - or 14%.

Before 2015, the credit union's loan growth had been well below peer average. Post 2015, however, Power Financial's growth rate has remained at or above peer average in all quarters save one.

Starting first quarter 2015, the credit union's share growth spiked. First quarter 2017 marks two consecutive quarters of double-digit share growth.

Power Financial's operating expense ratio has historically remained near peer average. Until 2015. Since then, the credit union has successfully lowered its expenses in relation to its revenue.

More Ways To Satisfy Appetites

Although the credit union eliminated individual incentives, it introduced a team-based gain sharing program that offers a bonus payment to all employees when the institution hits certain performance metrics.

“Everybody gets the same incentives,” Prindle says.

Power Financial tracks the metrics, which change quarterly, on an easily accessible internal scorecard. For the credit union, that was a way to do right by its employees.

While looking for more ways to do right by its members, the credit union stumbled onto a point where it was failing to live up to this promise.

In monthly meetings, Prindle often grades new products, services, and developments by asking a simple question: Is this what family does?

“If your brother or sister needs some extra money, are you going to take advantage of them and charge them extra fees?” Tuyo asks. For Power Financial, the answer is no.

Incentives are destructive. They're a cancer to the organization.

Allan Prindle, President/CEO, Power Financial Credit Union

That’s because in early 2016, the credit union eliminated many punitive fees — including ATM and overdraft fees — that earned the credit union more than $1 million annually. In the next years, the credit union plans to remove its remaining punitive fees.

“This falls under our cultural perspective of good profit versus bad profit,” Prindle says. “We think punitive fees are bad profit. They might make money and look good on the bottom line, but in the long-term members notice when you nickel-and-dime them.”

According to Prindle, good profit comes from value-adds, such as wealth management and insurance services fees.

In other efforts to improve employees’ lives, the credit union is overhauling its annual performance review process. Tuyo cites the shift some companies, such as Deloitte, have made from objective reviews to subjective ones.

Power Financial is focusing more now on what employees are doing daily and getting them to adopt a process-oriented approach as opposed to focused solely on results. It’s the same rationale that inspired the credit union to eliminate individual incentives.

“Our evaluations are more about doing the right things on a daily basis,” Prindle says. “If you do that, you’ll get the outcome you want.”

 

 

 

June 12, 2017


Comments

 
 
 
  • Incentives are not inherently Cancer. You can build incentives and coach to incentives that encourage improving the financial well being of the member. A strong incentive culture requires a different approach to coaching and training. Supervisors must be clear about the objectives and watch for "do this - get that" behaviors.
    Deb Enochson