New guidance from British regulators aims to help firms ensure that a subtle focus on sales does not create excess pressure on frontline staff that leads to consumer harm.
The U.K. Financial Conduct Authority (FCA) issued final guidance on Monday on ways for firms to mitigate the risks to consumers from inappropriate “performance management” practices. The concern is that along with compensation structures, frontline retail staff can be pushed by management to put an excessive focus on sales, at the expense of clients’ best interests.
“The culture of a firm is important in ensuring customers are at the heart of how a business is run. A key driver of culture is how people are rewarded and the behaviours that are valued and recognized by the firm. The way in which staff are incentivized and their performance is managed plays a key role in this, which is why we are interested in it,” the FCA says.
Although it hasn’t identified widespread issues in this area, the FCA has uncovered instances of poor practice that can drive mis-selling because of pressure to meet targets and/or corporate objectives. “Whilst some pressure is not unexpected, an undue level of pressure is likely to further increase the risk to customers,” it notes.
In particular, the FCA says that middle managers are likely to face conflicts of interest that need to be managed in order to balance sales objectives with other goals, such as the way products are being sold. The guidance aims to help firms to satisfy themselves that the risk of mis-selling from performance management is being managed; and, to monitor for indicators of undue pressure to identify poor practices, including encouraging staff to provide feedback and taking appropriate action.
“It is not our role to prescribe how firms manage the performance of their staff, but we expect firms to manage the risk of mis-selling effectively, including identifying where poor performance management practice may be leading to undue pressure,” the FCA says.
Although a number of firms may have reformed their compensation structures in recent years, the FCA has seen evidence that this may not have been accompanied by a genuine shift away from a sales-focused culture. “Instead, there are indications that in some cases the progress made on financial incentives may have led to an increase in pressure being placed on staff through other means, to achieve sales,” the FCA notes.
“Pressure from challenging and stretching objectives and regular discussions about progress against objectives is not unexpected in any job, financial services or otherwise,” it says. “However, inappropriate performance management can sometimes lead to an excessive emphasis on sales results. This type of undue pressure may be hidden, which means there is a risk that the reality of daily life for some sales staff can be very different from the tone set at the top by senior staff or boards.”