Should Customer Feedback Scores Drive Compensation?

In our recent research, we found that 57% of large North American companies have a formalized voice of the customer program and 45% of those firms tie compensation to customer feedback scores.

A lot of industry pundits suggest that tying compensation to customer feedback is a good thing. But is it really?!?

My take: I’ve seen situations where tying compensation to feedback scores has helped a lot and I’ve seen situations where it has failed miserably. So the correct answer is much more nuanced than a simple you should or you shouldn’t tie compensation to customer feedback.

Before I give my advice, here are three key underlying principles:

  1. If there is significant compensation tied to any metric (including customer feedback), then people will look for ways to manipulate the measurement.
  2. If people don’t understand a metric, then tying compensation to it will have little impact on their behavior and any downside in compensation will create a very negative response.
  3. If people don’t understand how they personally can affect a metric, then tying compensation to it will have little impact on their behavior and any downside in compensation will create a very negative response.

One of the bad situations that I’ve seen is when a CEO falls in love with a metric like Net Promoter Score (NPS) and insists on immediately tying large chunks of compensation to it. Executives often don’t understand how they impact the measurement, can’t explain some of the movement, and therefore become resentful of the overall NPS program.

Does that mean that I am against tying compensation to customer feedback scores? No! Since customer perceptions determine loyalty, feedback is an important barometer of the future health of the business. So it makes sense for it to be part of a compensation package.

Alas, here are my recommendations:

  • Create a metric (it can be made up of one or several customer feedback measurements) that is easy to understand and make sure that you educate the organization about what it is, why it’s important, and what they can do to affect it. Allow at least 2 quarters for educating the organization.
  • Provide reporting that shows how the company and each organization is doing in terms of the metric. Make sure that you can provide an analysis of internal activities along two dimensions 1) how correlated is the activity to the metric?; 2) how well is the company performing in those areas (based on customer feedback)?
  • Develop specific customer feedback goals for the entire executive team. Start by using shadow goals (without any compensation impact) for at least two quarters so the execs can understand how they can affect the measurement.
  • After the executive goals are in place, use a company-wide or division-wide metric to raise awareness of the importance of customer feedback. Incorporate it into the overall profit sharing or bonus structure in the firm.
  • If your metric has some slight unexplainable variance (which many do), tie compensation to bands of performance instead of to a single number. This focuses people on moving in the right direction and away from obsessing about a single number.
  • Consider starting with a compensation plan that is biased towards upside. In other words, you may want to introduce the plan where there is little negative impact on compensation if the group doesn’t hit a goal, but there is positive impact of they exceed it. This can help eliminate some of the negative perceptions early in a program.

The bottom line: Companies should tie compensation to customer feedback scores… slowly.

About Bruce Temkin
I am a customer experience transformist, helping large organizations improve business results by changing how they deal with customers. As part of this focus, I examine strategy, marketing, interaction design, customer service, and leadership practices. I am also a fanatical student of business, so this blog provides an outlet for sharing insights from my ongoing educational journey. Simply put, I am passionate about spotting emerging best practices and helping companies master them. And, as many people know, I love to speak about these topics in almost any forum. My “title” is Managing Partner of the Temkin Group, a customer experience research and consulting firm that helps organizations become more customer-centric. Our goal is simple: accelerate the path to delighting customers. I am also the co-founder and chair of the Customer Experience Professionals Association (CXPA.org), a non-profit organization dedicated to the success of CX professionals.

10 Responses to Should Customer Feedback Scores Drive Compensation?

  1. deb eastman says:

    Bruce,

    Thanks for tackling this important topic. We see many companies make the mistake of thinking linking to compensation will drive the results. The results come when people really buy into their role in improving the experience and act accordingly, the score follows.

    Two additions to your advice above:
    1. ensure trustworthy data. If you base compensation low sample sizes, low response rates, sample bias, whatever, you are kidding yourself about your performance.
    2. understand the drivers of loyalty and focus attention on the improvements of the drivers. Best in class companies understand this and use the drivers (ie. timely communication of trouble ticket status) as the measure rather then the score.

    I offer more learnings from our clients on my blog of your readers are interested.

    Deb Eastman, Satmetrix

  2. Barry Dalton says:

    As I was reading through, each point I was going to comment on, you already covered. Well do. I will add this as a broader context.

    Not only with customer feedback scores but with any metric, alignment is the key to the successful long term implementation of any performance management system. By alignment, I mean complete alignment amont the expectations (the metrics), capabilities (the organizational ability to deliver on those expectations and move those metrics) and the reward and recognition system.

    The misalignment of many performance management systems is at the root of many of the challenges you raised in your post, from bad behavior to low adoption or focus.

    Think E-R-C, and then, as you said, implement pragmatically.

  3. lbwong says:

    Good information! As a person who experiences both sides of customer service–as a customer and a customer service rep–using compensation to create improved service can be a win-win situation.

    Nonetheless, there is “two sides to a coin.” Remember the term “junk in, junk out.” Customer feedback is only as good as the data recieved. For many customers, they may not understand the positive (and negative) affects of providing accurate feedback or feedback at all. Once customers understand they are the motivating factor towards organizational change, perhaps more people would be willing to participate.

    While we are on the subject, what about considering customer compensation for feedback? Perhaps a bit out there…maybe, maybe not. In fact, when I purchased a new car a couple of years ago, I was sent an upfront cash incentive to complete a survey. The incentive came from a globally known marketing firm.

    Today, I took my positive experience with one company one step further. Not only did I look up the company website to find a customer survey to let them know about the excellent service, I also wrote a longer-than-normal blog about it today (if you’re interested, http://lbwong.wordpress.com/2010/07/29/roll-over-to-americas-tire/). The beauty of blogging (thanks WordPress!)

    Thanks again for the info! LB

  4. Great points! Building on a few elements:

    Team vs. Individual Compensation – When we work with customers on tying feedback data to compensation we advise starting at a team level before moving to compensation at an individual level. Even then, we recommend keeping some portion of compensation tied to team vs. individual performance to reduce potential issues caused by variations in sample volume and to drive the right culture of 1) collaborating to resolve customer issues and 2) sharing best practices.
    Transparency – Customers tell us it can help to establish credibility if they promote the fact that the data is being captured and managed by a leading independent Enterprise Feedback Management company and can be audited upon request. As a best practice, we also participate in audits with our customers to help them identify signs of gaming if there is a concern.
    Governance – To ensure consistency, we recommend that a central body be responsible for establishing policies for tying feedback to compensation. This body should also be responsible for approving any requests to modify response data in those rare cases when there is a legitimate respondent error (i.e. thinking ‘1’ was the top of the scale instead of the bottom), and making a change will impact compensation amount.

    We blog about other best practices at http://www.markettools.com/blog.

  5. Great post and comments! I echo the importance of the intelligence and integrity of the data and to ensure you include team based incentives, I also appreciate the other additions brought forward.

    I would like to add:
    – by inviting your employees to have input designing the compensation model and criteria you generate a number of wins; a head start on the education element, generate new measures leaders may not think of, and collective ownership
    – reinforce the education element on an individual basis when bonuses are awarded and be consistent and deliberate in the approach and messaging of this process. Too often bonuses demotivate employees and can be perceived as punishment rather than reward, with a mindful approach this is a constructive opportunity as well as an education and feedback opportunity. In other words, don’t just have the bonus show up on employees paychecks without personalized 1:1 context.
    – include a “stretch” or “above and beyond” incentive. This is the best way to reward your top 10% without demotivating those that fall just short of that. For example, if full reward budget is $5000, present full reward potential as $4000 with a $1000 stretch bonus. This slight distinction makes a big difference. (This is one way to address what Bruce was saying in his last point.)
    – help those outside of customer support understand how they can impact results, other divisions often feel like they are unable to control these types of measures when in fact everyone can. The efficiency and effectiveness of phone systems, CRMs, all tools, have impact on customer scores. All of these secondary influences need to be taken into account when designing your compensation model.

    Finally I agree that customer scores should be tied in slowly, it is important to be transparent about this approach and to expect it to change. You will learn a lot from this process so it is important not to view change as failure, perhaps present it as a “soft launch” initially and encourage feedback.

    Thanks for the great discussion.

  6. Eric Jacques says:

    Excellent post and discussion Bruce!

    Too often companies compensate for bringing in new customers (sales commissions) but rarely (never?) reward their employees for retaining customers. There has to be balance.

    I agree that there is risk and that most customer feedback metrics can be gamed. However, I believe that most employees do it for one of two reasons:
    1 – They don’t understand how their job can and will impact the score;
    2 – They don’t believe that management really has an interest in delivering good experiences. (Management has to walk the talk)

    The steps you outlined are definitely a step in the right direction. Dawna and others also add some interesting and useful suggestions.

    However, what is usually lacking is patience and communication. People want to see results now and don’t take the time to correctly implement changes. I would go so far as to say that your time lines are too short.

    Having said that, I think this is a great post and discussion on a topic that definitely needs more of it. Keep up the good work!

    Cheers!
    Eric

  7. Some really interesting points here. I have set up customer expreience feedback programmes for over 100 major retailers and hospitality providers in the UK and linking compensation to feedback has real benefits. To maximise it’s affect I found that giving small rewards little and often keeps people focused on the feedback they receive and motivates them to continually deliver great service.

    lbwong – your right about customers understanding or not understanding the impact their feedback has but one of the things I don’t see organisations doing, is sharing the feedback they receive publically and what they will be doing as a result of the feedback. By sharing this you demonstrate the impact of feedback and customers start to see real change, they feel valued and it gives other customers confidence that sharing their feedback will be valued too. This creates a stronger emotional bond with the brand / business.

    @simonboydell

  8. Andy Perkins says:

    A key element to implementing a voice of the customer program is focusing on MORE than the ‘score’ — whether that be Net Promoter Score or another.

    In my experience, it’s all too common for management and employees to get caught up in tracking the movement of the score – especially when compensation is tied to it – and forget about the developing a richer understanding of what customers are saying in their comments.

    I look at the comments from open-ended questions as one of the opportunity engines of a business. It’s often from within these comments that can come insights that lead to the very programs that raise the scores — and presumably — the business results.

    Developing ongoing reporting processes that bring the actual ‘voice of the customer’ into management discussions should be a high priority.

    Keep up the good work!

    Andy Perkins
    The Satisfaction Questionnaire Blog

    • Andy I COMPLETELY agree! We actually just recently posted a blog entry talking about this exactly. Too often we see our clients focus on the rating scores that we provide and don’t take the extra couple of minutes to look at what the customers are ACTUALLY saying. All that information that’s in those comments is going to waste. The real gold in customer feedback is hidden in those customer comments. Those comments should carry more weight than an average of ratings across a customer base, ESPECIALLY when considering tying a bonus to a customer service reps performance.

      Picture finishing dinner at a restaurant and being given the opportunity to fill out a survey in exchange for a discount on your next visit. You open the survey and its a number of rating questions with a comments box. The customers that just want the discount circle the numbers but the customers that really care take the time to fill out the comment boxes. These customers talk about the server, the food presentation, their overall experience but this would be missed if you just look at that number 4 they circled and its shuffled in an average of all responses.

      Allen Bredeson
      Service Quality Measurement Blog

  9. Sian Roberts says:

    Bruce, you have made some very interesting points and started quite a discussion which has been useful towards some initial research I’m making into employee compensation. Having worked in client relations for many years, I am currently in the transition into employee relations and how to best manage staff. Having read through your recommendations

    Provide reporting that shows how the company and each organization is doing in terms of the metric – I think this one is a key area which organisations need to develop better. So many times I have come across metrics which have been created, but they are not monitored?! The costs which are lost because of this really does continue to amaze me.

    All the best,

    Sian Roberts (Client Relations, UK)

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