Should you offer staff monetary incentives to deliver good customer service?

With the human element so crucial to the customer experiences of so many organisations, it is little wonder that service and CX leaders explore many different tactics to encourage staff to maintain high standards.

Agent metrics are a standard method of measuring service standards, while monitoring tools have long enabled managers to keep a close eye on the performance of their staff. Elsewhere, employee engagement strategies have become increasingly important as organisations acknowledge the role that staff wellness plays in performance. 

Another approach to optimise standards has been to link staff pay to service quality. But this is a strategy that has historically had a mixed reception.

“Service quality is one of the most sustainable means of long-term competitive advantage for a business,” says Paul Russell, director of Luxury Academy London.

“It is what should differentiate you from your competitors in a positive way. It is absolutely a good idea for staff pay to be linked to service quality levels because by doing so you are demonstrating exactly where you want staff to concentrate their efforts- namely on consistently strong service quality for customers.”

However, others are not so convinced.

“Extrinsic motivation works for tasks that require little creativity, so it's hard to tell for sure if pay should be linked to service quality,” adds Jack Barmby, founder and CEO of Gnatta.

“Incentivising on quality can be difficult given quality isn't static, so it could be demotivating to staff when pay is variable month on month. On the whole, bonusing based on high quality is fine (on the understanding that continuous bonusing should be avoided) but, in my opinion, linking it to core pay will have a negative impact.”

Should you connect staff pay and customer service levels?

Nevertheless, it is a strategy that has been adopted and mulled over for many years.

Ten years ago, for example, in the wake of a series of scandals in the financial services sector, the outgoing head of the Financial Services Authority (FSA) Hector Sants called on banks to rebuild their relationships with customers by linking staff pay to customer service.

Criticising the banker bonus culture, he urged a new approach to improve customer relationships and restoring trust, adding: “We need to work with industry to give more thought to how customer treatment is reflected in the compensation culture.”

Some banks have indeed incentivised service performance in this way, with Sarah Cook, MD of Stairway Consultancy, noting that many major High Street banks link pay to service for customer-facing managers, with a service element in incentive schemes. “The benefits of this should be that excellent service is seen as an essential element in everyone’s job roles and that the delivery of exceptional service carries a financial reward. Theoretically it should encourage everyone to deliver excellent service,” she says.

Jo Causon from the Institute of Customer Service has suggested that for sectors such as banking, which has had a tarnished reputation, customer trust could be rebuilt by giving customer satisfaction measures more prominence in performance management and pay at all levels in the organisation.

She says: “Including customer service measures in executives’ pay and bonus contracts would increase the focus on customer service at senior levels in the organisation. It would demonstrate to customers, employees and shareholders that the organisation has an authentic commitment to its customer.”

Are the right measures in place?

But connecting staff pay with service levels is also a cause for concern for some. While Russell believes that the approach can be successful, he also has a warning for those looking to adopt it: “A caveat is that this approach needs an intimate understand of what customer service expectations actually are, and training to ensure staff have the requisite skills to deliver the expected service.”

Elsewhere, Kevin Tubb, director of customer value management at The AA believes that while incentives are a critical part of the execution of a customer management lifecycle strategy, and especially ones that have a human element and can therefore be influenced by people’s motivations, it’s crucial that companies have the right measures in place, and ensure that the sample size is large enough to accurately reflect a team’s performance. But even then there are drawbacks.

“One is that some types of interaction can be very hard to influence, for example when an agent is dealing with a process failure that falls outside of their control. This can quickly become demoralising. It can be overcome by incentivising the relative performance against others rather than the absolute score. 

This approach needs an intimate understand of what customer service expectations actually are, and training to ensure staff have the requisite skills to deliver the expected service.

“In my opinion and experience though, a balanced scorecard is almost always the best way, with a focus on how the service interaction fits with the overall lifecycle. Take the world of highly valuable commercial transactions such as pay TV or mobile contract renewal. Whilst customer service delivery is still critical during renewal conversations, it may be more important to maintain higher levels of quality control, and adherence to scripts and process.”  

While the likes of Russell and Tubb both recommend that organisations proceed with caution, others are completely against using monetary incentives to drive up service standards.

Forrester’s Maxie Schmidt, for instance, is a vocal critic of the model – arguing that “monetary incentives backfires. Every time. Often in spectacular, unforeseen ways.”

She believes that the only reason some organisations continue to reach for monetary incentives is that they are under the illusion of one or more of five myths. She has summarised them in the following diagram.

So, overall there is a complex picture for those organisations considering connecting staff pay and service levels.

Yet despite the contradicting opinions, there is evidence to suggest that the model could become more commonplace in the near future, as a result of the rapid adoption of AI. With AI now able to evaluate employee performance, it is just a matter of time before it will also be able to match rewards more clearly to the actual outputs of every individual - not just in a once a-year performance evaluation but in real-time and down to the minute. 

“Whilst the evaluation of service quality has been somewhat ambiguous in the past, some individuals believe that AI has the power to accurately measure customer service inputs vs outputs,” notes John Everhard, director at Pegasystems. “Perhaps in the short-term we could see AI used to calculate performance-related bonuses.

“Of course, an employee’s worth can’t be reduced to an algorithm. Many factors, such as creative flair, empathy with customers and the ability to inspire colleagues, contribute to an organisation’s success and service quality but they can’t be quantified in a productivity calculation. However, our research suggests that respondents have confidence that cognitive automation will in time be able to understand and quantify these abilities.”