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Developing Incentive Compensation Programs for Mortgage Lenders.

Developing Incentive Compensation Programs for Mortgage Lenders

Mortgage Bankers Association of America 1125 15th Street, N.W. Washington, D.C. 20005 1991, 50 pages, $30 (members), $35 (nonmembers) Softcover The mortgage banking industry is by and large an industry of entrepreneurs. As such, a typical incentive compensation plan is designed over lunch on the back of a napkin, with a handshake and the promise that the "details will be worked out later." Unfortunately, the demands of business become such that often the details never quite get worked out. This leads to both unhappy management and an unhappy employee.

Carl Jacobs, in his book Developing Incentive Compensation Programs for Mortgage Lenders, takes us through the necessary steps in designing well-conceived, thorough, incentive compensation programs for executives and loan officers of mortgage lending companies. The book is an excellent, comprehensive guide to the design and implementation of incentive plans. The author discusses different types of plans needed for such individuals as loan officers, managers and senior executives.

The book starts with an introduction to the various types of pay plans that are available for management and employees. An important part of the first chapter is an explanation of why compensation plans typically fail. The need for clear communication and proper plan design are stressed, as is the importance of not "tinkering with" the plan. Changing the plan too often can be construed by employees as the company trying to take advantage of them, regardless of management's motives.

There's an old saying that compensation guides employee actions; accordingly, how incentives are designed will direct how mortgage lending personnel use their time and direct their efforts. In this vein, the author gives an overview of the various types of incentive plans available to the industry, both long-term plans and annual incentive plans. Long-term plans include stock-based plans, performance-based plans and equity-based plans. Short-term cash plans give coverage to bonuses, goal-based incentives and commissions.

One of the book's greatest assets is its discussion of creating an incentive plan. The author explains the importance of designing the developing criteria, making sure the plan is in concert with the organization's objectives, assessing the receptivity of management to the new plan and reviewing how the plan will impact the company's business situation.

As the author shows, the plan must be thoroughly designed to achieve its stated objectives. As one mortgage banking manager once told me, "I haven't found an incentive plan yet where I can't beat the system." The book shows how to assess the purpose of the plan, make sure that it meets both the company's objectives and the employees' needs, and encourages attitudes by employees of winning with the system instead of beating it.

The presentation of the differences in incentive compensation programs for mortgage lenders is excellent. This book is presented to independent mortgage banks as well as to financial institutions. In fact, one of the case studies illustrates how incentives can be used for a financial institution that wants to become more customer-driven and more sales-oriented. Thorough examples of typical plans are presented along with the guidelines for administration, performance measurement, sample calculations and expected results. Along with the sample case studies, there is a complete discussion of the importance of determining and setting appropriate employee base salaries and setting the appropriate mix of salaries to incentives.

As the author illustrates, it is essential to test the completed plan to make sure that it works under various circumstances--even circumstances that may not be readily apparent in today's environment. This ensures that the incentive plans will stand the test of time and can be used over a complete lending cycle.

Developing Incentive Compensation Programs for Mortgage Lenders is an excellent guide for those mortgage lenders wishing to develop new incentive plans or to revise existing plans to reflect competitive conditions. This book is invaluable in helping senior management and boad members develop new programs for their own companies as the industry moves away from simplified compensation programs that pay predominantly on production to those that are more oriented toward the bottom line. Jacobs gives examples, sample plans and case studies to help guide lenders in developing progressive incentive compensation plans.

The author has done a service in showing mortgage lenders the basics of designing incentive plans to lead them towards increased profitability.
COPYRIGHT 1991 Mortgage Bankers Association of America
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1991 Gale, Cengage Learning. All rights reserved.

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Author:Greeley, Tom
Publication:Mortgage Banking
Article Type:Book Review
Date:Dec 1, 1991
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