The recent scandal involving Wells Fargo employees creating fake accounts in order to achieve sales targets has cast a spotlight on compensation practices in the financial services industry. There are many segments of the industry that use commission-based compensation to create financial incentives for employees to achieve performance targets, like sales goals or collection money recovered.
At last week’s Northeast Debt Collections Expo, Roger Weiss, the chief operating officer for CACi and president of The Collections Coach, gave a presentation on compensation best practices, more so in the context of making sure that a collection agency’s operations are not putting them in the crosshairs of the Consumer Financial Protection Bureau, but also looking at the $180 million fine that the agency levied against Wells Fargo for what it was accused of doing.
“When a commission element exists, then a compliance element must be included,” Weiss said during his presentation. “You can’t push for revenue anymore because you are running the risk of compromising quality and compliance. You can’t push hard for revenue anymore because you are running the risk of compromising quality and compliance. It is all about how to get the most juice from that squeeze, and that is done through quality communications.”
Collection agencies frequently offer incentives to try and get their agents to recover as much money as possible. But in this new era of compliance and the CFPB, there has to be a corresponding penalty for agents who go too far or cross the line. The CFPB wants to see what that financial services organizations are taking those penalties seriously, if institutions opt to offer commission-based compensation. Determining what the penalty is, Weiss said, is up to each company.
The most important step, Weiss said, is to develop documented policies and procedures around bonuses and penalties to ensure that they are consistent. Some of the questions to ask include:
- Is it clearly documented?
- Is it objective? Using phrases like “manager’s discretion” is not a good idea.
- Is it consistent?
- Is it measurable and defined?
- Is it significant?
- Does it send the intended message?
- Is it shared and communicated with all employees and managers?
- Does it bear the weight of scrutiny if the CFPB is standing in front of you?
“If you can explain it to CFPB in a way that makes them say you’re taking it seriously, then it’s ok,” Weiss said.
Agencies may want to start preparing for a day when all employees are paid hourly or salary and do not receive commissions for their work.
“I believe the CFPB is going to make it so unsavory to pay bonuses and commissions,” Weiss said. “This might become an eventuality.”
DBA International applauds Roger Weiss’ presentation on compensation best practices and the need for commission plans to include a compliance element. DBA’s Receivables Management Certification Program — which covers debt buying companies, collection agencies and law firms — has a specific standard that any certified companies must comply with that requires all commissions or bonuses based on collection activity to include compliance-related criteria for the payment of such forms of compensation. All of the certification standards are rooted in the compliance culture enabling certified companies to operate with best practices that promote transparency, consumer protections and meet or exceed all laws and regulations.