Tying CX performance to monetary incentives backfires. Every time (paywall). Often in spectacular, unforeseen ways. And while we have seen some firms take the leap into a world without monetary CX incentives, tying accountability for CX to money is still a common shortcut in CX transformations.
Unfortunately, that weakens employee morale and creates bad CX. Or we’ll quote J.R.R. Tolkien – for the Lord of the Ring fans among you – “Short cuts make long delays.”
Five myths are at the heart of why firms continue to reach for monetary incentives.
That’s true, even though these monetary incentives always lead to unintended consequences. Chances are your firm subscribes to one or more – hopefully not all 5! – of these myths. In our latest research report (paywall), my colleague Sam Stern and I describe the five myths we uncovered:
There are way better approaches to motivate your employees to deliver good CX!
These approaches include relinquishing some of the control we think we need to exert so that employees work “properly” and instead defining clearly what success is, providing opportunities for deliberate practice, offering prompt praise and recognition to heighten motivation for delivering better CX, and recognizing above-and-beyond performance separately. Read more in our research report (paywall).
Four ways you can help wean your firm off monetary CX incentives:
Sam and I lay out four steps firms should take to back away from monetary CX incentives that reduce the likelihood of withdrawal symptoms. (for more details and examples, check out the full report).
- Assess how much you spend on your current incentives. We provide a calculator (paywall) to help compile the numbers, and an estimate to compare against. The headline? Monetary CX incentives are expensive! Which makes them an even bigger, juicier target to cut.
- Check how well that money is spent. Are your incentives prompt, exciting, peer-to-peer, unexpected and prosocial(paywall) ?
- Suggest alternative ways to spend the incentive budget. We strongly recommend that you reinvest it in other initiatives that will benefit employees. That could be prosocial incentives, funding donations to charities that employees can direct, or in training or recognition programs that benefit employees.
- Withdraw incentives step by step. Don’t make employees go cold turkey.
Check out the example of a large UK grocery chain: The firm had monetary CX incentives for their store employees based on the store’s customer survey results, but saw it led to bad outcomes. For example, some stores posted signs that primed customers with key words from the survey questions, like “Excellent” or “Welcome.” And survey response rates and scores consistently went up near the end of reporting periods which was likely a sign of employees focusing on the survey and less on the service interaction when the deadline for calculating the monetary CX incentive loomed.
The company started its retreat from CX monetary incentives by removing the visibility to the scores – employees could see comments from surveys, but not scores. At first store employees would try to guess the NPS results based on the comments, but that dropped off after a while, and employees became less score-obsessed. Next, the grocer disconnected employee bonuses from their store-specific CX scores. Now the monetary compensation the employees on the shop floor received was not directly connected to their stores CX results but based on the country-wide brand perception. And each store got targets for incremental improvement, with the focus more on how the stores got their results, as opposed to what the results were.
Please share your comments and your favorite stories about unintended consequences that come from monetary CX incentives below.
This blog post also appeared on Forrester.com
I’m in general agreement with this Employees are savvy and, for good or evil, will focus their efforts on bumping CX metrics for financial reward if they are actively communicated and pushed within the organization (though, because NPS is such a poor gauge of customer behavior, it’s clear why the UK retailer saw poor results). As demonstrated by SHRM and academic studies (and your study as well), it is often more beneficial, for both employees and customers, to blend employee reward with recognition: https://www.forbes.com/sites/meghanbiro/2013/01/13/5-ways-leaders-rock-employee-recognition/#7a76151f47ca
Incentive pay is a sophisticated tool that can be misunderstood, misused, or poorly implemented. Does that mean incentive pay itself is bad, or that companies should abandon using it? I’m not convinced. Does incentive pay produce unintended outcomes? No question. Are those outcomes always undesirable – again, I’m not convinced. If that were true, wouldn’t incentive pay have fizzled out decades ago?
In fact, unintended outcomes accompany almost any business decision or choice. That should not discourage people from making decisions. I believe the same is true for incentive pay.
I don’t hew to the argument that because incentives are deemed expensive, that makes them a ‘juicier target’ to cut. The road of bad CX is littered with the wreckage of companies whose executives sought cost-cutting opportunities to fatten the gross margin, only to have the effort backfire. If incentives are considered successful and support business strategy, keep them. If not, cut them and save the money.
There are many problems with incentive pay, and it’s especially risky when customer ratings have a direct bearing on employee earnings. One study I cited for an article I wrote in 2009 asked whether race and gender biases influenced customer satisfaction. (please see https://contrarydomino.com/2013/12/race-and-gender-influence-customer-service-bonuses/) The study concluded that they did. No employer should want to perpetuate pay inequity, no matter now small the risk.
There are plentiful examples of companies that did a poor job executing incentive pay. And I agree that companies should not attempt to codify behavior. Happily, most that I work with don’t. Action is what they codify. They want employees to deliver certain things with consistency – address the customer by name, dress professionally, thank the customer, make direct eye contact. I don’t care as much whether those actions come from behaviors like sincerity, empathy, or kindness. One benefit of using incentive pay is that employees tend to self-select into specific roles (‘tend’ being the operative word), so those behaviors are brought to the job, obviating the need to codify behavior.
Rules are a two-edged sword. In CX, they can be stultifying, and reduce employee autonomy to the point where good customer outcomes become jeopardized (see Starbucks – Philadelphia). But they also provide safety – both for employees and customers (see Starbucks Revised Rules Philadelphia). When rules guide employees in their daily interactions with customers, isn’t that a better way to help them feel assured they are doing a good job in the eyes of management, and a way for customers to receive consistent service?
There are two immediate dangers to eliminating incentives: 1) some employees depend on the variable pay to make a living wage. I’m not sure how I’d explain to a solid producer that the $10,000 in incentives I pay her annually will now go to supporting diabetes research. “Gee! Thanks?” 2) At many companies, incentives are motivating employees to provide valuable customer experiences. Radically changing the motivational formula introduces significant risks for CX, brand equity, and revenue.
I am not advocating the preservation of incentive pay, but rather to be circumspect, informed, and intelligent about using it. An article I wrote on the topic, Teach Your Sales Force Well: Learning from Pay for Performance explains the key benefits of incentive pay (please see https://contrarydomino.com/2015/07/teach-your-sales-force-well-learning-from-pay-for-performance/). They are: motivation, communication, risk sharing, and screening. The article also outlines the risks, not the least of which includes the fact that incentives are often based on flawed proxies. Do high customer satisfaction ratings mean that the business will be successful in preserving loyalty? Does high revenue mean that [department X] is doing a good job supporting customer needs?
These are among the issues that are present when incentive pay is incongruent with the needs of the business. But that doesn’t mean incentive pay should be discarded.