Do Collector Bonuses Send the Wrong Message, Impact Compliance?

Brett Sivits

I had a boss whose near constant mantra was “Change is good…right?”  By adding the “right” I assumed she was asking whomever she was talking to embrace her own willingness to roll with the punches.   Knowing her positive attitude about the future I still assume that was mostly true but now I think that at least on occasion the last part of the phrase was a desperate request for affirmation that change was indeed good.

The constant flow of change has made for one constant in our industry.  For every change that we as an industry address, we add an additional layer of complexity for our collectors.  This complexity is already seen as a barrier to their success but what you may not realize is that this complexity may also require us to fundamentally change how we motivate and compensate them.

One almost universal constant in the industry is that collectors receive a bonus or commission.  I have been part of literally hundreds of discussions extolling the virtues of this model or that, and have authored many schemes myself.  However, today I propose a new approach.  I would suggest the possibility that collectors no longer receive a bonus at all.  Instead, I would simply ask that we consider compensating our collectors with a more generous flat wage and strive to hire and retain the best of the best.

The Science

In research dating back 40 years it has been demonstrated over and over again that individuals who are faced with a complex task not only do not perform better when there is a monetary reward, they actually perform worse.  The keyword in the sentence above is complex.  Individuals performing simple tasks are still motivated by financial rewards.  The science behind this is simple.  The monetary reward focuses the mind on the relatively small portion of the task for which it’s being rewarded and the mind deemphasizes the other parts of the task.

The research not only finds that monetary rewards erode performance but that the negative effect on performance is magnified as the reward increases.  In other words, the more you pay in bonus the more performance can be negatively affected.

Click here for more information about the science.

Complexity

Is a collector’s job more complex than it was 10 years ago?  Will a collector’s job be more complex going forward?  The questions are almost rhetorical at this point but for the sake of argument I will review just a couple of the items that are adding layers upon layers of complexity.

In 1977 the first federal law explicitly governing the collection industry was passed.  In the 36 years since the FDCPA became law, a whole host of other laws have been passed – not to mention the volumes of case law that now govern almost every action taken by a debt collector.  In 2011 the CFPB was created and an entirely new type of oversight radically changed the landscape that we operate in.  A recent announcement by the CFPB foreshadows even more changes coming in 2015

Compliance is not the only force that is shepherding us into a brave new world.  The speed of change is accelerated by the ever-increasing sophistication of consumers.  Never mind the fact that the economy is in constant flux and we as consumers seem to be fundamentally different than we were before 2008.

Technology is another one of those forces on the march.  Would your clients allow you to replace all the computers in your office with index cards? What if someone broke into your office and stole your dialer and left you a pile of rotary phones (assuming your dialer isn’t already in the cloud).  Is it still even possible to run your business without huge amounts of outside data being dumped into your system every day?  Would you still be in business if you were forced to complete every bankruptcy form with a typewriter?  The answer to those questions demonstrates our absolute reliance on technology and its ability to make our operations scalable and as a result, profitable. 

I propose that the simple position of “Collector” is not simple anymore.  I have listened to and scored thousands of collection calls from across the country from multiple industries, and I can say confidently that the best collectors are doing much more than they have ever done in the past.

As a result of that complexity, many in the industry have simply increased the complexity of the bonus schedule.  Now instead of just measuring dollars collected we measure additional performance indicators and compliance related data elements.  Just as obvious of a reaction to someone outside of the industry may be to eliminate the bonus scale all together.

I have the pleasure of working with both private and public entities and one key difference is most government entities who collect money don’t pay bonuses.  A careful review of the data between private and public entities is that every meaningful indicator of performance is the same in both groups.  The bell curve of performance that we are familiar with is almost identical when you pay a bonus and when you do not.  At least in these examples, overall performance is not impacted by taking away a bonus and replacing it with other intrinsic motivators.

True Motivation

In the absence of financial motivation, we will need to motivate differently.  For years, we have understood that intrinsic motivation, a desire to improve from within yourself, is more powerful then extrinsic.  Rewarding a collector intrinsically will require that we value collectors beyond their ability to recover funds.    The list below is just a few of the things that can motivate your staff.

• Growth Potential
• Being part of a team
• Self-Improvement
• Doing Good
• Making  a Contribution
• Autonomy 

If all of this seems Pollyanna then I would propose that you do not think much of your staff.  Clearly, some would “wash out” but most would stay and thrive and those left will represent the type of staff you have always wanted.

The difference maker is that this kind of motivation is long-term and self-satisfying.   Pure financial motivation is simply not satisfying in the long term.   A raise today is tomorrow’s expectation.  A huge bonus today is next year’s standard.  You are in a race with their expectations.

The Future

Pew Research and others have indicated that Millennials are willing to stay in jobs longer than recent generations and that their financial motivator isn’t just a high salary but to a large extent it’s also income stability.  As of right now, Millennials are the largest segment of the American workforce and as their influence grows we need to be willing to adapt to meet their expectations.

The benefit to a staff that receives intrinsic motivation from doing their job is obvious.  They perform better, they stay longer, they are motivated to improve the process and ultimately make the company better.  Rolling this out should not be seen as a cost savings measure.  Bonuses and Commission dollars should be reinvested in your staff by increasing their direct compensation.  Measures to ensure performance will need to be strengthened and underperforming collectors will need to receive additional training and coaching.

Don’t take my word or even the researchers’ word for it.  As an industry, we have been paying bonuses and commissions for decades and many in the collections industry will be uncomfortable with my conclusions but I would propose that you test them out.  Try it with one team of collectors or with one location etc.  Ensure that the inputs are the same and that the training, coaching, and your measuring strategies are all in place.

A higher average salary will draw a higher caliber employee who will be more equipped because of education or experience to successfully accomplish the goals we give them.  Increased training, coaching, and follow through will provide our staff with the tools to accomplish this ever increasingly difficult task with increased success.  If this industry is going to successfully evolve in this environment, we need to begin to rethink some of our “best practices” and compensation can be the first step to a whole new breed of collector.