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10 reasons why the FSA launched its incentives crackdown

In the wake of the Financial Services Authority’s new guidance on incentive schemes we look back at ten examples of the worst practice the regulator uncovered, resulting in its latest paper.

Spreading the love

The FSA saw one case where a firm’s sales staff could have their bonuses multiplied by eight times for cross-selling protection products.

The regulator said this created a ‘strong incentive’ for staff to sell protection products to consumers regardless of their needs in order to hit a certain number of sales to bump up their bonus.

The FSA said: ‘This incentive scheme was likely to drive sales staff to mis-sell, for example misleading consumers by exaggerating the benefits of a product while playing down the limitations.’

Bling when you're winning

Another example of disproportionate rewards which the FSA reported would lead to mis-selling was a firm who worked on a ‘first past the post’ competition.

The first 21 sales staff members at one firm who hit a certain sales target or threshold were rewarded with a £10,000 thank you.

The FSA said: ‘This created a strong motivation to reach the ‘Super Bonus’ target as soon as possible, increasing the risk of mis-selling.’

Pressure for the big sell

One firm looked at by the FSA put their sales staff under pressure to churn sales by moving staff between different salary bands depending on how much they sold.

The regulator discovered the highest salary band earned more than three times the lower salary band, which created a strong incentive to make enough sales to get into the higher salary bracket.

One member of staff started at grade 1 and moved swiftly to grade 5 and saw his annual salary increase by more than £25,000. When he then exceeded his sales target over the next 18 months, he further received an extra £20,000 to his expanded salary.

The only way is up

In the FSA’s thematic work on payment protection insurance, it revealed one firm’s very generous bonus system that could result in staff earning a 100% bonus of their basic salary if they sold PPI to at least half their customers.

The FSA said: ‘However, no bonus would be paid unless staff sold PPI to at least 50% of all customers. This incentive increased the risk of sales staff mis-selling PPI.’


One firm was shown to have very poor controls in place when it allowed staff to retain their doubled-bonus despite mis-selling; allowing staff to get away with it if it was only the once.

The firm doubled the monthly bonus of staff who met a high standard of compliance with sales processes as long as there was only one mistake.

However, the problem as the FSA pointed out was that administrative errors, including getting a customer’s name wrong was treated the same as mis-selling.

Hitting the target

The FSA found sales staff at one firm colluding together to mislead customers and overcharge them to hit their sales target.

During the conversation between two members of staff that the regulator listened to, the sales person said: ‘This is going to make my target… I’ll end up with about a thousand pounds… We need to ring [the customer], I will do all the talking [and] you confirm the price.’

Keeping it simple

The FSA reported poor controls for inappropriate behaviour by sales staff at one firm when getting customer feedback.

The regulator said the firm collected irrelevant evidence because the main focus was on customer satisfaction not customer outcomes.

The FSA said: ‘They relied on ‘yes/no’ questions, for example asking the customer if the key features or limitations of a product were explained to them, rather than testing if the correct information was provided clearly.’

Being with stupid

Those who were responsible for incentive schemes within their own firm did not understand how the schemes could cause detrimental effects to their customers, according to the FSA.

The FSA said: ‘Senior managers responsible for incentive schemes did not understand the risks to customers created by the features of their incentive schemes or relied on other staff who did not understand the risks.’

Bringing home the bacon

One firm was shown by the FSA to have its heart in the right place when it came to penalising staff for poor practice but failed to go the whole hog to reduce potential customer risks.

The firm had both a monthly and quarterly bonus for sales staff but when the firm’s file checking showed up failures including poor advice, staff were penalised by losing their quarterly bonus.

However, they were still eligible to receive the heftier monthly bonuses which could go up to more than £7,000.

The FSA noted: ‘Since staff could still earn significant bonuses while giving poor quality advice, this scheme was unlikely to have the right impact on staff behaviour.’

Showing your claws

The FSA reported one example where sales staff continued to receive bonuses despite facing huge amounts in clawback.

One firm gave a member of its sales team a £40,000 bonus after it was issued with a £19,000 bill in clawback.

The FSA said: ‘The firm was unable to satisfy the FSA that it had an effective approach to monitoring the levels of clawback for individual sales staff, in particular the root causes of the underlying reasons for the cancellation of policies.’