Customer Insight

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Rewarding Customer Satisfaction

By TLF Research

How do you feel after you've stayed at a hotel where you were treated like a VIP? Great, relaxed and happy! You book a return visit and you tell your friends about it. How do you feel after visiting a retail store where the sales representatives treated you as an "inconvenience" they had to deal with? Annoyed, dissatisfied and negative! You tell your friends and they tell other people too. Next time, you and they, shop elsewhere! Employees who deliver great customer satisfaction should be rewarded for it; and those who don't, shouldn't be. In this article Ray Robertson sets out a four step process to rewarding customer satisfaction and some examples of how it can work in different organisational circumstances.

Step 1: Focus on what matters most to customers

If you want to understand how customers feel about your organisation you have to use the same criteria that they use to make that judgement. Take a train company, for example. You can ask lots of questions about cleanliness, the range of sandwiches, the colour scheme in the coaches and the frequency of services, and get good scores. But, if punctuality and the cost of fares matter a lot to customers and you don't include them in your questionnaire, you won't get a measure of how satisfied or dissatisfied they feel. Understanding what customers want and value is crucial for securing the satisfaction and loyalty that leads to long term growth and business success. These are the factors that should be the focus of reward.

Step 2: Reward the people who deliver customer satisfaction

Who should you reward? The answer is the employees who actually deliver, directly or indirectly, the desired outcomes. Front-line customer facing employees who have a direct impact on customer relationships will be at or near the top of list, with their team leaders and managers close behind. But what about all those other employees who are involved in designing, developing, marketing and manufacturing products, or meeting and greeting visitors or telephone callers, or preparing reports for clients. Don't they affect customer satisfaction too? Of course they do! Their input is there, but it's not always visible to the customer and that's the crux of it. Their input can be difficult to measure, but, and it's a huge but, many organisations expect these employees to deliver excellence in everything they do, although they don't reward them for it - financially or non-financially. This hardly makes employees feel valued and that doesn't make commercial sense!

Step 3: Gain employees’ commitment from the start

Employees may have heard on the grapevine that you're thinking about linking reward and customer satisfaction. How will they react? "Is this instead of the annual pay rise?" they may ask. "What happens if we don't meet the target - will my salary be reduced?" Employees must believe there's something in it for them and that it's not a management ploy to reduce salary costs, for example. So, it's critically important to be up-front with employees who will be affected. Prepare some examples of how a possible scheme could work and some questions and answers around the following aspects:

  • The reasons you want to link reward and customer satisfaction
  • Possible targets and how they will be established and agreed
  • How performance against targets will be measured
  • Potential payments employees could receive.

One of the best ways to gain employees’ confidence in what you want to achieve is to involve them in the design process. Employee focus groups, face-to-face meetings, a project team or a "pulse survey" are great opportunities to tap into employees' knowledge, ideas and concerns, and design the type of scheme that will work best in your organisation.

Step 4: Ensure you manage targets robustly and fairly

There are five things you have to get right. If you don't, employees simply won't believe customer satisfaction related rewards are fair. And that's bad for your business.

Develop the right targets

These should come directly from the things that matter most to your customers. So, if your organisation wants to improve customer loyalty, for example, it needs to find out which factors affect customer loyalty. These might be quality of service delivered at the time of sale, post sales support, speed of complaint resolution, technical support, and customer involvement in new product design. These factors alone should determine your targets.

Cascade targets to the right level

Targets must always relate to aspects that employees can control or influence. That may sound obvious, but I come across many instances where employees just don't feel they can affect the outcome. Targets need to be cascaded to the right organisational level, such as business unit, department, branch or team. That means actual performance in relation to those targets must be measurable at those organisational levels too. This is especially important for schemes that combine targets which apply to specific parts of the organisation and other targets which are common to all parts of the organisation.

Have SMART targets

Targets should be SMART- specific, measurable, agreed, realistic and timed. A simply stated target, for example, "increase customer satisfaction in our 5 most profitable customers from 75% to 80%, over the next 12 months", is far better than a woolly statement of intent. The timescale must be realistic too: if it's too short, employees may feel they've been "set up to fail"; if it's too long, keeping them motivated may be difficult.

Figure 1

Measure how targets are achieved

This is about how employees achieve their SMART targets - their behaviour and competence in doing their job. Aspects that are important to customers might include professionalism, responsiveness, helpfulness and attentiveness. There are many ways these aspects can be measured, such as asking customers to fill in a simple questionnaire, using mystery shoppers, getting input from team colleagues and, of course, team leaders and managers observing behaviours. Doing this at the appropriate organisational level is essential.

Give feedback and coaching

Employees want to know how well they are doing, especially when part of their pay may be at risk, so managers must demonstrate they are totally committed to improving customer satisfaction by giving specific, relevant and constructive feedback about progress towards targets. This should include private and public recognition of excellent customer service because it's a good motivator and encourages people to be as good as they can be. Highlighting low performance by giving only negative feedback - and in my experience that still happens far too often - is counter-productive. Disparity between what the organisation says and what it does is all too apparent to employees.

How rewarding customer satisfaction might work for you

What sort of scheme might suit your organisation? This will depend on several factors: its size, structure, systems for measuring customer satisfaction and employees’ attitudes. Examples of the choices in three types of organisation are given below.

Small but growing organisation

Your organisation needs everybody to pay attention to detail in every aspect of customer relationships and because it's a small organisation, departments must work together closely to get things done successfully, so everybody has responsibility for creating a quality "customer experience". You could consider a scheme along the following lines:

  • Single measure of customer satisfaction for which you set a minimum target, and assess annually how easy or difficult it was to achieve.
  • Same payout for all employees, so for example, everybody gets 2% of base salary or £500 for an increase in customer satisfaction from say 82% to 84%. If the target is exceeded, you could make an additional discretionary payment of up to £250.

However, the scheme wouldn't reflect the relative contributions of departments, teams or individuals, so some people may feel their efforts aren't rewarded sufficiently.

Fairly large organisation

Your organisation has lots of work-based teams that interact with customers. Your customer relationship management and HR systems are reasonably sophisticated for example, a customer satisfaction index has been developed for some business units and employee performance review is well established and respected. However, the impact on customer satisfaction varies by department so, ideally, any link to reward should take this into account. You could develop a scheme along the following lines:

  • Rather than having one measure of customer satisfaction at business unit level, you could break this down into the factors that drive satisfaction, such as the expertise, professionalism and helpfulness of employees.
  • You calculate a customer satisfaction index for each department by averaging the scores for all factors (Figure 1). If you know the importance customers attach to each factor, you could calculate a weighted index, probably quarterly. You would need to survey a minimum of 100 customers and aim to increase this to 200 to improve the "statistical validity" of the results.
  • You differentiate reward by department, using a simple scale (Figure 2). Let's assume the minimum target customer satisfaction index by department is 75. That means employees in department C, with an index of 71, don't receive any payment. You need to tell them why and agree priorities for improving their performance. Employees in the other three departments receive a bonus of 0.5% of base salary for every 1% above the target Satisfaction Index of 75. This means that employees in department D receive a 3.5% bonus, in department B, a 5.3% bonus and in department A, a 7% bonus.

The scheme gives higher rewards for higher performance and conveys the message "Continuous improvement counts". However, division between departments that need to work together could arise. If cooperation is important, rewards should be based on a combination of company and department results.

Project team-based organisation

Your organisation is largely project-based and while each project is self-contained all projects contribute to the organisation's overall business results. Performance measures, which include customer satisfaction, are established at the outset of each project and actual performance is assessed at the end, using input from customers. However, you know that customer satisfaction (and ultimately customer loyalty) in relation to projects is based more on the experience of the relationship between the team and the customer, than on the quality of "the product / service" or work undertaken by the team. Customer feedback tells you this is where project teams need to improve.

You might want to consider two approaches:

  • A bonus linked to customer ratings of satisfaction measured against criteria that matter most to customers, such as professionalism, problem resolution, relationship building and responsiveness. The bonus might be part of a plan which includes other performance criteria, such as cost and on-time delivery.
  • All teams could compete for "Project Team of the Year" an award based on overall contribution to the entire organisation. The fact that different projects may have different degrees of difficulty would need to be taken into account. Difficulty might be assessed in terms of factors such as technical challenge, resources available and balancing the needs of different groups of people involved. The "prize" could be presented jointly by a key customer and the Managing Director of your organisation.

Key points

  • Reward the things that your customers tell you matter most to them - not what you "think" matters.
  • Focus on the people who can actually deliver the desired outcomes. That might be everybody; it might be a few.
  • Build grass-roots employee support for rewarding customer satisfaction, by involving them in the design process. This is a major factor in successful implementation.
  • Ensure the process for gathering customer feedback is robust and fair. Employees must be able to trust it - otherwise you'll quickly alienate them.
  • Ensure you can establish and measure targets at the appropriate organisational level, such as business unit, department, branch or team. That way you connect employees’ day-today work and customer needs.
  • Don't forget non-financial rewards.
  • Give employees the opportunity to meet important customers in an informal setting and involve those customers in recognising employees for outstanding service.
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