If you are really serious about creating a culture of customer advocacy, then you will certainly tie incentive compensation to customer feedback. Right?
Wrong.
Inherent risks and unintended consequences
Anyone who has ever experimented with incentive compensation, knows it can be a powerful way to create organizational focus. Done right, incentive compensation can reinforce the company's values and motivate specific actions designed to meet important goals. Done wrong, the unintended consequences can be devastating. Some of the most important risks:
- Extreme focus on the score: With incentive compensation, the saying goes, you get exactly (and only) what you pay for. If you give your team goals based on scores, they will focus on those scores. How will this manifest itself?
- They may criticize the data collection methodology and score calculation.
- They will probably spend way too much time explaining and rationalizing the scores. You will hear things like "problems with our vendors impacted our customers and depressed our scores" or "our score was low last month because it rained a lot and made the customers depressed."
- They will complain that the scores measure things outside of their control, and therefore the feedback collection methodology should be modified to focus on things only under their direct control
- Gaming: The logical extension of extreme focus on the scores is active gaming -- cheating. This takes several forms. The two most common:
- Selective surveying. In some companies, front line employees can "bury" customers who they know will give negative feedback by recording inaccurate contact info or flagging them as having opted out of surveys. Similarly, they may explicitly ask only happy customers to answer the survey they will get. At one retailer, I noticed a clerk would use a Sharpie pen to circle the survey invitation at the bottom of the receipt, look the customer in the eye, and say "It would really help me out if you would fill out our survey. If you mention me by name, I'll get an award." She only did this for a subset of the customers, however. Guess which ones.
Misguided attempt to influence the SCORE instead of earning a customer's loyalty (click to enlarge)Begging for scores. The classic example of this is the car dealership service department that posts a huge sign next to the cashier showing the satisfaction survey with a big bold circle around the top score. Or the car salesman who, after what was an otherwise good experience, pulls out the survey and tells you that if you don't give him a 10 on these two key questions, he will lose his top status and his kids will starve. (For a great example running all throughout a company, see the related post: Begging for scores at Hilton.)
- Disaffection and disengagement: If you don't have a stable, reliable metric before you begin working it into your compensation system, get ready for a real firestorm. Two major issues can create this sort of situation:
- Score instability. Problems with sample selection, changes in the mix of customers by segment or touchpoint or product, differences in response rates caused by survey methodology changes, or even inadequate sample sizes can create instability or even plain unreliable scores.
- Inadequate or immature understanding of loyalty drivers. Early in a typical closed-loop feedback process, front line employees, supervisors and the management team struggle to understand what creates positive and negative changes in scores. Frankly, it's pretty unusual for employees to trust the scores early in the life of a new metric system. Until your team has some sense of control and influence over the outcomes, a compensation system based on a new score may seem unfair or arbitrary. Result: anger, finger-pointing, defensiveness. Anything except the intended focus on the fundamental goal of creating more Promoters and fewer Detractors.
Conclusions
Please don't misinterpret my objective or the implications here. I believe most companies should ultimately work customer feedback scores into incentive compensation systems. Based on our experience at Bain and with the NPS Loyalty Forum, we have found that if the senior-most executives are explicitly and publicly on the hook for improvement, they pay more attention to the issues. It also sends a great message to the organization about what the company values. If not, lots of important opportunities will be missed and the company's efforts may even be at real risk of failure.
Nevertheless, Bain clients and others have had experiences that demonstrate the need for caution. Before including any form of customer feedback scores in compensation, especially for front line employees -- the ones interacting daily with your customers -- you need a stable, reliable metric that people understand and trust. Moreover, gaming is serious stuff, and so you need protections against it. It erodes customer trust and ultimately undermines the entire intent of your efforts to improve customer loyalty using closed-loop customer feedback.
Next time: Some constructive advice about HOW to use feedback scores in incentive compensation
Tuesday, December 14, 2010 at 10:14PM 
TIAA-CREF includes NPS in executive compensationInterest in tying incentives to NPS and other customer metrics continues. Since at least 2008, TIAA, the big insurance company, has included NPS improvement goals in senior executive compensation. In May 2010 Phones4U, a UK mobile phone retailer, announced a big increase in the weight of NPS in its frontline compensation (news article). The move received mixed reviews from sales staff. Pep Boys, a US auto parts store chain, reports that NPS is an important part of their executive compensation system, and describes it in their proxy statement.;)
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