The Royal Commission into Banking and FS identified some common customer, reputational and financial risk issues for organisations using sales incentives across all sectors ...

1. AligningSalesIncentives,
CultureandGovernance
RoyalCommission Insights
February,2019

2. 2
Document Classification: KPMG Confidential
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AligningSalesIncentives,CultureandGovernance:
“remuneration tells staff
what the entity values’
and poorly designed and
implemented
remuneration
arrangements ‘can lead,
and have led, to poor
customer outcomes”
Commissioner Hayne
2019 Final Report: Royal Commission into
Misconduct in the Banking, Superannuation and
Financial Services Industry
KeyQuestions forClients…:
Board
CEO
GMHR
SalesHead
Do we have effective operational governance and controls in place to ensure sales force incentives are driving the
right results and behaviours for the business, our customers and our external stakeholders ?
Are our sales force incentive programs driving sales and service performance that aligns with our customer needs
AND the culture required for us to be successful ? Are we managing potential risks effectively ?
Do we have the right sales force reward strategy in place that will attract and retain the right people with the right
values, skills and behaviours to achieve our goals, reinforce our culture, and meet our customers needs ?
Are our sales incentives and commission plans motivating staff to deliver on our client service proposition, whilst
delivering improved sales results and outcomes for the business ?
Whythisisimportant…
1. Sales and service intensive organisations across sectors have a common exposure to some of the risks
raised in the Banking Royal Commission around poorly designed and governed incentive plans.
2. New regulatory controls are going to set a new standard for managing the link between remuneration,
culture and governance … which will become the new norm for boards across sectors. Establishing and
maintaining robust operational governance of sales incentive plans will be an increasing area of focus
for boards and management.
3. Sales incentives can account for some of the largest remuneration arrangements in an organisation, and
where heavily geared, can deliver total remuneration levels equivalent to some senior executive roles,
which can heighten behavioural and customer risks.
4. Regular reviews of the integrity of sales incentive plan design and management practices will be critical
to ensure that plans are operating as they were intended to, whilst mitigating any systemic risks for
business, customers and employees.
The Royal Commission into Banking & Financial Services identified the critical relationship that exists between
incentives, culture and governance .. and the real impact on customers when this is not managed effectively.BankingRoyal Commission

3. 3
Document Classification: KPMG Confidential
AligningSalesIncentives,CultureandGovernance:
“An ASX listed business engaged
KPMG to perform a review of
their sales commission
arrangements for their strategic
account managers.
It was the first review of the plan
in four years.
The review identified that some
account managers were gaming
the plan by artificially churning
existing clients and re-heating
them as new clients in order to
increase their commission as new
business.
On further examination it was
proven that commissions had
been inflated by 35% in one year
for some account managers”
CaseExample KeyPrinciplesForAlignment
To establish an appropriate operational governance framework for sales incentives and an approach to monitor the
alignment, efficiency and effectiveness of plans, the following key principles should be considered:
JasonWhite
Director
M: +61 431 478 363
E: jwhite9@kpmg.com.au
KPMGContacts
Sales
Performance
Pay Alignment
Right Pay
Mix
Goal &
Target
Setting
Review &
Reporting
Deferrals
and
Clawbacks
Design
Independence
Sales Incentives
Operational
Governance
Principles
• Create a layer of independence
between sales management and
the final plan design approval
• Embed regular reporting and
analysis processes
• Establish dashboard of key
metrics and ratios for real time
reporting and analysis
• Apply % deferrals to payments
to cover risk of fluctuations
across the year
• Embed “wind-fall” protections
• Apply clawbacks for
misconduct or poor behaviour
• Embed the WHAT and HOW
into scorecard objectives and
goals
• Ensure target setting is robust
and reflects genuine
performance growth
• Align pay mix and % pay at
risk to levels of sales force
prominence
• Utilise total rewards – avoid
singular focus on incentives
• Track the distribution and alignment of
performance and incentive payments
• Look for gaming and “sand bagging”
KPMG 3dc has extensive experience in the review and design of sales incentive and commission structures.
We work with boards, management and HR functions to provide independent assessments of plan
arrangements and provide expert advice on plan design, implementation and governance.