What Incentive Pay Plans Work Best to Enhance Customer Service?

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In 2001, the Institute of Management and Administration, Inc. (IOMA) conducted a survey of operation directors, vice presidents, service managers, office managers, and national managers of customer service divisions around the country. The survey's focus was to determine which incentive pay formats work best to reinforce employee behavior in the delivery of customer service. The following is a summary of the survey results presented in IOMA's Pay for Performance Report (http://www.ioma.com). The survey covers a representative sample of 110 organizations encompassing a cross section of industries around the country.

The survey found the vast majority of organizations focus their base pay levels on the market. Adjustments to base are primarily based on market fluctuations and local supply and demand issues. There was little mention of linking base pay adjustments to either individual or group performance. Approximately two-thirds of respondents utilize the same form of incentive compensation as the basis for either group or individual recognition.

Respondents were asked to list, from their perspective, the most and least successful incentive programs in terms of reinforcing a customer service focus by employees.

1. Sales Incentives
2. Annual Bonus Program
3. One-Time Spot Awards
4. Gainsharing
5. Quarterly Bonus
6. Customer Compliment / Feedback Program
7. Monthly Incentives
8. Team-Based Incentives
9. Profit Sharing
10. Project Focused Incentives

Least Successful

1. Annual Bonus Program
2. Profit Sharing
3. Team-Based Incentives
4. Monthly Incentives
5. Customer Compliment / Feedback Program
6. Stock Based Programs
7. Quarterly Incentives
8. One-Time Spot Awards
9. Individual Based Incentives
10. Sales Incentives

Annual bonus programs had the distinction of being both the second most effective program and the least effective program in the survey. This is a clear indication that the success of incentive programs is measured based on organization culture and initial needs. Survey participants were then asked how effective their incentive programs are in reinforcing customer service behaviors. The top ten programs were reviewed in terms of Highly Effective, Moderately Effective, and Not at All Effective.
 

The following are comments from survey respondents regarding these incentive programs and their effectiveness.

Sales Incentives:

Why They Work: "Sales incentives are most successful because they are based on individual performance. More money, a lot of involvement and fun with customers."

Why They Don't Work: "Those involved in customer services do not have complete control over the ultimate outcome (sale) of the interaction. Sales are a team effort."

Annual Bonus Programs:

Why They Work: "The program is not based on personality or skills. Each person sets goals with their supervisor so there is assurance that the goal is attainable. The goals are upfront and each employee clearly understands what is required to achieve the goal."

Why They Don't Work: "Bonuses seem to be expected regardless of performance. Goals are often set too high and unattainable. Payment of bonus is often contingent upon the overall financial success of the company and not individual performance so it becomes a negative."

One-Time Spot Awards:

Why They Work: "Makes employees proud and leads them to want it again. Employees feel they are recognized for actions just taken."

Why They Don't Work: "They are contingent on feedback from customers which is not always available or forthcoming."

Gainsharing:

Why They Work: "Employees come up with ideas to save dollars for the company. If achieved, a year-end bonus is paid."

Why They Don't Work: "Employees get frustrated when they make recommendations that management and senior management doesn't act upon thus losing interest in the program."

Quarterly Bonuses:

Why They Work: "Gives the employee a positive attitude toward the company and their jobs. They can see the result of their efforts in a short period of time. Do not have to wait a whole year to gauge and reward for results. But does require consistent performance beyond one time."

Why They Don't Work: "High risk to the organization if there is a payout for one quarter but the remaining quarters do not meet their targets."

Astron consultants advocate the use of self-funded "goal sharing" programs in incentive programs impacting employees. The self-funded aspect ensures the protection of the organization's resources. The group involved must determine a way to fund the incentives without negatively impacting the organization's current financial targets.

In customer service focus areas, the first challenge is to determine the value of customer service or satisfaction and to translate this value into tangible dollars. Often organizations find this difficult because customer service is viewed as a long-term, rather than short-term, impact. The ability to fund the program also becomes the "team" reward aspect of the program.

The second challenge is to determine the behaviors or outcomes, outside of the financial benefits, the organization is attempting to enhance. These become the measures of individual effort. Using the "balanced scorecard" theory of success measurement, these measures should focus on quality improvement, growth / process improvement, financial improvement, and / or customer improvement. Take a historical review of your organization's successes and failures. Determine in what areas employees can have an influence and improve.

Once determined, a matrix can be established that links group goal achievement (funding) with individual contribution. Quarterly based incentives are most effective in allowing quick recognition and reward while allowing the organization time to alter targets during the current fiscal year.

Looking for a top-notch presenter for your human resource organization's meeting? Both Jennifer Loftus and Michael Maciekowich present highly-rated sessions on a variety of compensation and employee retention issues. For more information, send an e-mail to info@astronsolutions.com.

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Copyright 2007, Astron Solutions, LLC

ISSN Number 1549-0467