CX-based Compensation Systems – Do They Work?

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Many companies have adopted CX-based compensation systems as a means to encourage employees to improve CX based on metrics obtained through customer feedback. While these compensation schemes are popular, they often backfire, creating more harm than good. There are alternative methods to reward your employees for progress that should be considered before adopting a CX-based compensation system.

Why it may seem like a good idea

If customer experience has been made a top priority in your business plan, rewarding those who are doing the best job is a no-brainer. In many scenarios, money is the ultimate incentive to ensure people are stepping up their game and performing to their best ability. Incentives change behaviour, but not always in the expected or intended way. It can fuel healthy competition and significant progress, but to link monetary incentives to an NPS or CSAT score can be tricky.

Giving employees higher pay or financial rewards for their performance tends to work best in sales environments where the proof is in the explicit financial gains. Employees who do not make sales, do not get bonuses. Employees who make sales get a commission based on the size of the sale. It is logical and there is little room for anyone to question its fairness. Compensating employees for good CX is not as cut and dried, so this method often disappoints in a CX-based environment, as customer-based metrics, unlike financially-based metrics, are not as precise or irrefutable.

The issue with CX-based compensation systems

Sometimes customer feedback cannot be taken at face value and when financial incentives are introduced, employees start to doubt the legitimacy of the scores’ reflection of performance. To begin with, scores are not necessarily indicative of the job performed. A score can often be based on external factors outside of any employee’s control.

Financial incentives are not effective at motivating employees to create better customer experiences. They induce stress, fuel unhealthy competition, and they make scores the priority over doing a good job. This is not great for confidence and leads to falling motivation. Rather than bettering customer experiences, employees try to game the system to enhance scores over helping customers as they begin to obsess over scores to the detriment of customers. They may pester customers to leave feedback, focus on specific tasks or customers that are more likely to lead to high scores, or question the veracity of feedback collection altogether.

Furthermore, it is rare for someone to go to work wanting to do a bad job, so the need for financial incentive should not even exist. If employees are appropriately motivated and encouraged by their managers to perform well, praise alone should suffice to get them on the right track to improving CX. For employees who are struggling, obtaining any sort of financial incentive may seem out of reach, so there is no chance of them working harder and they may even work less as a result of feeling defeated. They won’t bother to do a good job at the task they were hired to do, as their attitude may change to them doing the bare minimum until they are compensated for doing anything else. It eradicates the responsibility they have to perform well and create great customer experiences, thus lessening their accountability.

Alternative ways to reward your employees

1. Consider non-monetary incentives
There are so many ways to reward your employees for going above and beyond that are more fulfilling than compensation. You should celebrate great performance, but shout-outs in meetings or internal newsletters, quarterly awards, and the promise of potential promotion or raise can be enough incentive for employees to excel. Employees need to feel like there is meaning in the tasks they are doing so being verbally reinforced and encouraged can remind them that they have a purpose. You should create a culture of positivity – where good actions earn recognition. This will promote employee engagement and empowerment which will ultimately lead to improved CX.

2. Reward the collective over individuals
Focusing on individuals can lessen the progress of the group. Customer experiences are rarely executed by a single individual. It takes a whole team to create great experiences. Team members should be boosting each other up, helping each other and working as a group to perform well. Competition amongst individuals to be the best creates a distraction that is detrimental to progress. When recognising great work, make sure to acknowledge the collective rather than a single employee. Focusing on team-level metrics will nurture a cohesive work environment amongst employees and get them to encourage each other rather than get in each other’s way.

3. Focus on better CX, not better scores
All too often senior management can forget that the point of CX programmes is to actually improve the experience of customers, not to improve metrics. Of course, these two things are tied, but if employees are stuck obsessing over numbers they will use shortcuts to try to improve CX scores rather than focusing on legitimate experiences.

Encourage your employees to put their energy towards making sure the customers are getting the best service they can and eventually the scores will improve organically alongside your brand’s reputation. Invest in training programmes to teach employees how to deliver best-in-class customer experiences rather than relying on metrics and monetary gains to drive their motivation and performance.

The importance of employee satisfaction as a determining factor for customer satisfaction cannot be stressed enough. Happy employees yield happy customers, but striking a balance between creating great customer experiences and rewarding your employees for their hand in making these experiences happen can be tricky business. Monetary rewards are not likely to get you the positive results you desire. Focus your energy and funds elsewhere to provide a work environment that inspires your employees to shine.

12 COMMENTS

  1. Thank you for bringing up this point. What separates a good customer experience from a really great customer experience? Could it be the feeling that one has received service from the heart – empathy and real emotional connection with the service provider? That happens not because the provider expects a bonus at the end of the service process, but because he/she genuinely cares and takes pleasure in making the customer happy. Effective solutions leading to good customer experiences can be provided by artificial intelligence whilst real emotional connection requires the human touch to establish true rapport resulting in brand differentiation. The driver for service agents to provide great customer experience is their genuine desire to provide heartfelt service. High customer satisfaction will follow.

  2. A well-considered piece Sarah-Nicole. As someone who once was a proponent of CX-based incentives, I completely agree that the unintended consequences most often outweigh the benefit.

    There are downsides to every kind of performance-based compensation, of course. I’ve also, for example, seen a number of team-based rewards cause issues when motivated performers see their unmotivated teammates be rewarded along with them. But your core premise, that we should “focus on better CX, not better scores,” is a very sound foundation for any R&R program. Looking at your speedometer doesn’t help your car go faster.

    The most effective incentive models that I’ve seen, and the ones that we now promote, are rewards based on actions rather than results. If we believe that skills x, y&z cause positive CX results, then we don’t need to incentivize the results – just how well and consistently those skills are being applied. Instead of rewarding outcomes, reward behaviours. Recognize people who are making the effort to adopt new skills

  3. Excellent points. Here are some “nuts and bolts” that support Sarah-Nicole’s thoughts: Salespeople do what you pay them to do, not what you want them to do. So, financial incentives work with this group that takes risks and expects a leveraged comp plan. Other individual contributors (outside of sales) take few risks and expect compensation to meet their “nut” (expenses) They are relatively complacent when they are in their comfort zone (they can afford to live, perhaps put dollars in the 401 K.) In my experience only about 25% of these employees will stretch themselves to hit goals that nominally increase their pay. However, they are motivated by rewards that they would not otherwise buy themselves (going out to lunch, movie tickets, a sponsored dinner with their spouse, a trip… I agree that the environment created (driven by the culture) is the most motivating factor for non-sales employees.

  4. I like this perspective. Speaking from the contact center, focusing on a single “CX Metric” is dangerous and can promote negative behaviors among agents, as highlighted in this article. Contact center agents need to, as a team, strive to improve metrics like CSAT, NPS, etc. They do so by understanding how performance on other metrics contributes to CX success. This includes FCR, AHT, Quality, and more. If they are genuinely focused on improving the balance of metrics, they will do their part in improving CX. And I agree, celebrate as a collective and use individual results as a guideline for best practices that can be shared with the entire team to help lower performers improve.

  5. Very well thought out write up. Having been entangled in these for some time I would add a few other thoughts:
    1) avoid all or nothing payouts – people cheat
    2) avoid ‘one score’ approaches – cocktail approaches are better
    3) try and make goals something that is mostly in the persons control
    4) give regular feedback on where people stand vs. goal. surprisingly how many comp systems don’t do this
    5) have clear practices on cheating. zero tolerance
    6) agree on focusing on outcome, but if you go cold turkey on removing monetary rewards…some may interpret as CX not being important any more. If interested more here… https://curiositycx.com/2019/02/05/how-incentives-can-ruin-your-cx-program/

  6. Thank you for a good article about an important topic. A similar conversation about remuneration for Customer Success is also going on. The essential thing about *any* remuneration scheme is to ensure that it really does reward the behaviors that are desired. So often with remuneration schemes (especially more complicated ones) what happens is that people get rewarded for achieving higher scores on certain indicators. What often happens is that effort is redirected into whatever it takes to make the indicator go up, rather than in the activities that the indicator is there to measure. Essentially the indicator itself becomes more important than the outcome that the indicator was originally designed to measure, and of course this is a highly undesirable situation to end up in.

  7. Incentive pay systems compare to high-performance sports cars: when the driver is skilled, and understands how get the most out of the vehicle’s power, handling, and performance, the results can be stellar. In the hands of a novice like me, well, expect the vehicle to come back with lots of dings, dents, and scratches – to say nothing of the collateral destruction I caused along the way.

    Too many companies make forays into variable pay, only to find that the results are not what they intended. You have pointed out some important reasons to be circumspect, and not just jump into it because “it works well in Sales.” It might very well not be.

    The best perspective I have read on variable and performance pay comes from Cornell Professor Robert Bloomfield, who has done extensive work in this area. I referenced his studies in an article I wrote back in 2015, Teach Your Salesforce Well: Learning from Pay for Performance (please see http://customerthink.com/teach-your-sales-force-well-learning-from-pay-for-performance/).

    Bloomfield describes four reasons for using variable pay: motivation, communication, risk sharing, and screening. For brevity, I won’t elaborate here, but my article describes each reason in more detail.

    No company should implement pay-for-performance without understanding the risk categories, and you have pointed out several key problems in your article.

    1. Misunderstanding the Controllability Principle. That is, pay-for-performance often involves employees absorbing risks that they cannot control. That might be more fair at the senior management level, but it imposes an onerous burden on employees who might be on the lower echelons of the annual pay scale.

    2. Misalignment of incentive intensity. This is one of the most common breakdowns I see in incentive pay. Risk should be congruent with reward. In other words, if a significant chunk of an employee’s pay is “at risk,” there must be a commensurate upside for hitting a performance target. The converse is also true: when incentive payouts approach being automatic, then the company is likely overpaying.

    3. Unintended consequences. Well-described in your article.

    4. Moral hazard. Often overlooked, but extremely dangerous. When KPI’s such as revenue, NPS, and other measurements are involved for calculating pay, the company creates “opacity where the employer cannot distinguish whether a positive outcome results from hard work, skill, luck, or fraud,” as I describe in my article. That is never good.

    I agree with your overall idea. While I wouldn’t rule out incentive pay to reward employees for creating positive customer experiences, I recommend thinking long and hard whether it’s the right tool for the purpose.

  8. Good information here. I like Sarah-Nocole’s perspective. Peter Drucker said you can’t manage what you don’t measure. That’s metrics. Awarding on those metrics can be tricky. I like the suggestions of team awards and non-monetary incentives. Some people are very stressed out and turned off by serious competitions. Another “camp” might say that creating a good CX is what their paid to do anyway. Why should they need an incentive? Good article and good “food for thought.”

  9. Hi Sarah-Nicole, thanks for writing this important piece. Unfortunately, too many departments that are actually responsible for delivering exceptional customer experiences are undervalued by management. Companies should start paying employees based on how many customers they actually “touch” in a year. This would most result in lower turnover and higher morale, which would almost automatically improve both CX and the bottom line. It’s rare that you listen to an investment call, where the CEO, COO or CFO will ever mention front-line associates. They never highlight recent training initiatives, etc. As far as customer feedback is concerned, customers are surveyed way to often; reduce transaction surveys and substitute them with a well designed annual or semi-annual relationship survey. The results can be better tracked over time. NPS is overrated and not well understood enough by management to actually make improvements. CX management needs to create a new CX paradigm. Everyone serves the customer, but front-line associates by their very name are on the front lines. I am a strong believer in providing incentive plans. Pay people well and incentivize accordingly. Richard

  10. I think when you run a CX project, you need to define clearly everything, I explain:
    One so important thing in CX is the people involvement, in that case, you need to define the expected behaviours, the guides, goals, stakeholders & roles, the necessary training and analyse and follow it periodically.
    When you set some “prizes” to employes related to a good CX rating, it needs to have sense, it needs to be according to the impact of what they can do and the prize needs to be “personalized” to whom received (not necessarily money).

  11. Personally I think we are just discussing the culture of the organization. There is no reason why the incentive cannot be a monetary incentive is the culture is open and honest. This is all lead by the leaders of the organizations. I have seen leaders tell people to put pressure on Customers to get the right result and I have seen also seen leaders create a culture where if they did this in any way they would remove the person that did this. The latter is a real public statement that they are serious about getting open feedback.

  12. Thanks to Sarah-Nicole for writing an excellent post. Great discussion on the pros and cons of CX-based incentives.

    This is a complicated subject. My take: don’t discard the idea of incentives because it’s hard to do properly. That’s the job of management, after all.

    My experience is that incentives can work, but they’re not a substitute for a supportive culture and leadership. Even in sales, where success/failure is more concrete, quota attainment shouldn’t be the only thing driving behavior.

    I’ve found a few cases over the years where employees were mainly motivated by the culture — like Amica.

    On the other hand, some employees want to feel they have some stake in the success of a company. While they may not want to be on “quota” as a sales rep, a team-based approach with the behavioral goals rather than metrics seems like a better way to go to me. Because it’s too easy to turn the metric into the goal when money or careers are at stake.

    Research finds that incentives can and do work if properly developed and managed. That’s a big “if” however.

    Here’s an article worth reading on this subject:
    Incentives, Motivation and Workplace Performance: Research and Best Practices
    https://theirf.org/research/incentives-motivation-and-workplace-performance-research-and-best-practices/147/

    And the opening paragraph sums up the findings (my emphasis added):
    >>
    Despite the fact that U.S. organizations spend over $100 billion annually on incentive programs, many business people question their effectiveness. Now, a ground-breaking study proves that incentive programs can boost performance by anywhere from 25 to 44 percent, but only if conducted in ways that address all issues related to performance and human motivation. The study found that most organizations lack the knowledge or will to create properly constructed programs that yield desired results.
    >>

    Let’s face it, CX is hard. The right metrics and rewards are part of any attempt to make a strategy come to life.

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