Insights on Incentives has as its sole purpose the facilitation of thought and discussion on the subject of incentive compensation for banks and credit unions. Once a month NSS will be sending out an e-mail with one insight on the area of incentive compensation. The insights will come from our research, discussion with customers and finally, those of you who decide to offer an insight on this important sales management issue.
July 2008
Calculating Incentives for a Scorecard
This is just one approach to calculating incentives for a Scorecard and it ensures a balanced performance.
The example we will use is a quarterly scorecard for branch managers.
| Metric | Relative Weight |
Attainment % |
Score |
| Net Deposit Growth | 40 |
110% |
44 |
| Net Loan Growth | 30 |
90$ |
27 |
| Non-interest income | 15 |
120% |
18 |
| Commercial Referrals | 15 |
80% |
12 |
| Total Score | 101 |
The Attainment percentage is calculated by dividing the actual attainment for the metric by the target. Following that you can multiply the attainment percentage by the weight to get a score for the metric. Adding all the metric scores up gives you a total score for the Scorecard. Assuming a target bonus earnings of $1,000 then multiply the $1,000 target by the total score using the total score as a percentage. In the above example the bonus earned would be $1,000 x 101% = $1,010.
Other considerations are eliminating the bonus if the total score falls below 80 or if any percentage of attainment falls below a threshold such as 80%. This helps support the objective of ensuring a balanced performance across all metrics.
Lots of ways to do this. This is just one, but a good one.
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