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Three Ways To Manage the Perils of CX-based Compensation Systems


Most companies recognize the importance of great customer service and the importance of rewarding employees for great performance. Put these two things together, and it makes sense for companies to tie the size of their employees’ paychecks to the ratings they receive on customer satisfaction surveys. A full 43 percent of companies base some portion of frontline pay on customer feedback ratings, according to a 2017 Accenture-Medallia survey.
But, compensation systems tend to be blunt instruments with very delicate settings. Dialing them a little too far one way, and not enough another, can have dramatic effects. And, sometimes not the ones you want. So tying frontline incentives to an employee’s customer satisfaction ratings can be tricky. And, when the systems aren’t designed well, they can lead to employee behavior that runs counter to the goal of improving customer service.
The problems usually have to do with perceptions of accuracy and fairness. Employees may view a CX-based comp system as inaccurate or unfair for a number of reasons. For example, customers may get upset about things that employees have little control over or that  have nothing to do with employee performance. When a customer gets mad that a package he sent never arrives at its destination, he may give a low rating to the customer service agent, even though the package’s loss had nothing to do with the agent or her service. When the customer discovers that he actually never mailed the package, the agent still gets the low rating, even though she may have done everything exactly right.  
Employees also view incentive systems as unfair when they can’t do anything to make improvements or the company fails to provide the resources needed to meet customer expectations. Using a system of CX-based compensation without recognizing these potential risks often creates not only unsatisfied customers, but also unmotivated and unengaged employees.
Fortunately, companies can do things to minimize these risks. Here are three practices that can increase the accuracy of CX ratings and the fairness of the overall system:
1) Increase the volume and quality of customer feedback provided to each employee to improve the reliability of their overall CX rating. When a sufficient number of customers rate a given employee’s performance, there’s a higher probability that the overall rating reflects the quality of her actual performance.
2) Set targets that are fair and achievable. It’s important to ask yourself: Can your customer experience goals be fairly measured? Will market or organizational conditions affect results? Will some teams or locations have advantages over others? Performance targets should be both measurable and attainable. Even a very precise score can be a hindrance if it can’t be measured accurately or reflects an unrealistic target.
3) Make sure other systems and processes align with the goals you set. If you want employees to deliver great experiences, you need to give them the tools and discretion to do it well. Be sure you’re providing them with the proper training, information systems, workflows, and feedback. When systems align around a company’s customer-centric goals, employees will feel empowered and treated fairly in their efforts to deliver exceptional customer service.  
Incentive systems are just one lever that companies can use to motivate employees to be more customer centric. But they tend to have a disproportionate impact on behavior. While many ratings-based comp systems are flawed, there are ways to minimize some of their unintended consequences. Companies can mitigate the risks by creating reliable metrics, achievable goals, and an organization fully aligned around the customer. When all of these are in place, ratings-based incentive systems tend to be more accurate and fair, and, ultimately benefit both customers and employees. To learn more, read our white paper, Money and Motivation: Avoiding the Perils of CX-based Compensation.