Don't Incentivise Me Just Pay Me

8/7/2019 Don't Incentivise Me Just Pay Me

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“Don’t Incentivise me, just pay me!”

Untangling reward and behaviour to deliver powerful customerexperiences.

By Doug Shaw



Background

In December 2008, we ran an eventfor BT called “Stop Doing DumbThings to Customers”. Our guestswere invited to do two things.

“First, please turn on your CustomerExperience radar. Right now. Tuneinto, and remember the very bestcustomer experience that happens toyou between now and when youarrive at the event.

Second, please consider the singlebest thing you think BT could do toimprove the customer experience.”

People came along from all parts of BT. With a little help from ourcustomer experience experts atBudd, we joined the debate, heardnew ideas, provoked and challengedourselves to think creatively anddifferently about Customer Service.We had a lot of fun, and came upwith some great ideas.

One idea in particular stood out asbeing particularly radical, particularly

unconventional, and at first glance,particularly unachievable.

Ban financial incentives. Just paypeople the money. And give themclarity, responsibility, authority andaccountability.

Are we actually paying people to dodumb things? Everyone comes towork wanting to do a good job andintrinsically they know what’s right.

Then we go and spoil it all byoffering financial incentives which

drive the wrong behaviour andaction.And then we wonder why, havingpaid people for achieving, we fail toimprove the customer experience?Sometimes we even make thingsworse.

That can’t be good for ourcustomers, or for us, can it?

We quickly agreed that this ideaneeded developing.We felt that BT should not beeliminating incentives in order tosave wages, but to increaseengagement and motivation.

We will save the money that peoplespend, devising and negotiatingincentives and then devising waysround them. That saving will besignificant, but we should not try tocheapskate it. Spread the incentivemoney fairly across the pay packagethat rewards people for coming towork to do a good job. Don't paythem to turn up and then try to bribethem to perform.

It feels so right and yet, we knowthat we need more than a feeling toget something that feels so right andsimultaneously controversial off theground. We need some evidence,and a clear definition of customerwouldn’t go amiss either.

“ Congratulations and many

thanks for organising the

Custom er Experienc e even t last

night. I rea lly enjoyed it and hop e that I can b e involved in more of

the sam e go ing forwa rd !”

“ Budd were great! A real wea lth of knowledge ”



Definition of a Customer

We searched the dictionaries for adefinition and found this, courtesy of The Compact Oxford EnglishDictionary.

Customer. Noun

1 a person who buys goods orservices from a shop or business. 2 aperson or thing of a specified kindthat one has to deal with: he’s atough customer.

Oh dear, I don’t know about you butI’m not feeling the love I expect froma great customer experience. Do you

have to actually buy something to bea customer? Once more from TheCompact Oxford, this time with atwist:

relationship. noun

1 the way in which two or morepeople or things are connected, orthe state of being connected.

2 the way in which two or more

people or groups regard and behavetowards each other.

That’s better, kind of.

Then we were contacted by a goodfriend Ursula Butler, at the timeUrsula was the Head of Marketing forBT Tradespace. She came up trumpswith this definition:

“The dictionary definition is really

boring, you’re right! So I looked upthe etymology for you and here it is…

The word derives from “custom,” meaning “habit”; a customer wassomeone who frequented a particularshop, who made it a habit topurchase goods of the sort the shopsold there rather than elsewhere,and with whom the shopkeeper hadto maintain a relationship to keep hisor her “custom,” meaning expectedpurchases in the future. The word didnot refer to those who purchasedthings at a fair or bazaar, or from a

street vendor. So it’s all aboutmaintaining a relationship ratherthan just selling something anddisappearing off!”

Searching for Evidence

We began to conduct some research,looking for examples that couldprove what we felt was right. Wesearched through renowned businesstexts and publications, and we askedpeople in BT what they thought.

As we began to gather evidence,thoughts and opinions, it becameclear that there is much more to thisopportunity than just money. There’s

recognition, in its simplest form. Athank you for a job well done.There’s the right behaviour, doingwhat we say we will. There’s trust.There’s authentic, or serviceleadership.

All these things directly connectedto, and helped make the case forbanning financial incentives.

Let’s start at the top. DanielGoleman and Richard Boyatziswriting for The Harvard BusinessReview say, “Leading effectively isless about mastering situations – oreven mastering social skill sets –than about developing a positiveinterest in and talent for fosteringpositive feelings in the people whosecooperation and support you need”.

So how might our leaders go aboutthis task? Mirror neurons are a vitalpart of the process so let’s take amoment to understand how part of the human brain works. Mirrorneurons reproduce other people’semotions when we detect themthrough their actions. Collectively,

these neurons create an instantsense of shared experience.



Marie Dasborough’s extensiveresearch on emotional intelligence inorganisations concluded that peoplewho received positive feedbackaccompanied by negative emotionalsignals reported feeling worse about

their performance than did theparticipants who received good-natured negative feedback. Whenpeople feel better, they performbetter. So if leaders hope to get thebest out of their teams, they shouldcontinue to be demanding, but inways that foster a positive mood intheir teams. Vitally, Dasboroughstates, “The old carrot and stickapproach alone does not makeneural sense; traditional

incentive systems are simply notenough to get the bestperformance from followers.”

She goes on to say, “There is asubset of mirror neurons, whose only job is to detect other people’s smilesand laughter, prompting smiles andlaughter in return. A boss wholaughs and sets an easygoing toneputs those neurons to work,triggering spontaneous laughter and

knitting his team together in theprocess… other research finds thatbeing in a good mood helps people totake in information effectivelyrespond nimbly and creatively.”

This new thinking is, reassuringly,not a million miles away from someexcellent old thinking. In 1936, DaleCarnegie’s “How to win friends andinfluence people” was published. Theessence of his writing can be distilledinto four simple points:

1. Be positive and friendly.Smile. Never criticise orcomplain. Avoid arguments, show

respect, and never tell aCustomer they are wrong.

2. Be appreciative. It may soundlike old news, but expressingsincere appreciation strengthensrelations and taps into the humanneed to feel wanted andimportant. Carnegie describes

this as the secret to success.3. Be Customer centred. Show a

genuine interest in the Customerand talk in terms of theirinterests. Try to understand theirpoint of view and sympathisewith their challenges.

4. Be transparent. If you’rewrong, admit it quickly andemphatically. People want to feelimportant, so are more likely totake a magnanimous view of your

mistakes if you are open andcontrite.

So far we’ve found nothing linkingfinancial incentives (above andbeyond pay) to a positive outcome.In fact, we pinched this from TheIndependent newspaper in the throesof the financial meltdown early in2009:

We found a great example of financial incentives driving the wrongbehaviour in one of BT’s contact

centres. Stephen Holden told us;

“I have been dealing with disputedcharges and taking ownership of issues. Then one weekend someonedecided to set up an incentive wherepeople had to close as manydisputed charge issues as possible,but the advisors closed issueswithout speaking to customers thensent customer letters out. Thecustomers who then called back,

more angry than the first contact andwe were advised we could notreopen the issues but to

“ The b onus system ha s p roved

to b e wrong. Substa ntial ca sh

bonuses do not rewa rd the right

kind of be haviour.”

Andy Hornby, former CEO,

HBOS.



escalate to managers. This simplyresulted in more calls in to the centrefrom very dissatisfied customers. Sothat incentive was a bad decision.”

And of course, there are the old

chestnuts of bonussing sales peopleagainst revenue targets (what noprofit?) and customer satisfactionnumbers. In a way I find the latterthe more unusual. Surely we want toknow what our customers reallythink about us so that we can inturn, take action to improve things?So, why would we make someone’spay dependant on that feedback? If it were me who depended on thatmeasure being hit I would take all

the action I reasonably could toensure the score was sufficient. Evenif that meant targeting the “right” people (know what I mean?).

The past reward practices of a grouphealth claims division of a large USinsurance company provides anotherpowerful illustration.

Attempting to measure and rewardaccuracy in paying surgical claims,the firm systematically kept track of the number of returned cheques and

letters of complaint received frompolicyholders. However,underpayments were likely toprovoke cries of outrage from theinsured, while overpayments oftenwere accepted in courteous silence.Since it was often impossible to tellfrom the physician's statement whichof two surgical procedures, withdifferent allowable benefits, wasperformed, and since writing forclarifications would have interfered

with other standards used by thefirm concerning percentage of claimspaid within two days of receipt, the

new hire in more than one claimssection was soon acquainted with theinformal norm: "When in doubt, payit out!"

This situation was made even worse

by the firm's reward system. Thereward system called for annualmerit increases to be given to allemployees, in one of the followingthree amounts:

1. If the worker was"outstanding" (a selectcategory, into which no morethan two employees persection could be placed): 5percent

2. If the worker was "aboveaverage" (normally allworkers not "outstanding"were so rated): 4 percent

3. If the worker committed grossacts of negligence andirresponsibility for which he orshe might be discharged inmany other companies: 3percent.

Now, since there was only a smalldifference between the five percenttheoretically attainable through hardwork and the four percent attainableby merely living until the reviewdate, many employees were ratherindifferent to the possibility of obtaining the extra one percent of reward. In addition, since the penaltyfor error was a loss of only onepercent, employees tended to ignore

the norm concerning indiscriminatepayments.

This point is powerfully backed up byStephen Bevan, Associate Director,Institute for Employment Studies, inhis paper entitled “ Effectiveemployee performancemanagement and performancerelated pay”

"There is a very persistent and

touching loyalty to PRP (PerformanceRelated Pay) in the UK despite loads



of research evidence that suggeststhat it demotivates people and so on.If you talk to individualemployees they will say thatindividual PRP erodes and worksagainst collaborative teamwork.

That makes people compete w itheach other.

If you are using appraisal as amechanism for driving individual payawards you might compromise yourability to use training anddevelopment as a way of enhancingskill profile in organisations as aroute to improve performance. Ithink that could be a problem. Itdoes rely a lot on a bond of trust

with line managers and subordinates.In fact most individuals that weresurveyed on this argued that theyhad quite a good relationship withtheir boss and they were quite happythat they and their boss came upwith a clear view about what theirobjectives are. So it has been quiteinteresting, the paradoxical findingson PRP. It's quite a high acceptanceof that process but it's the pay bitthat w inds people up. What they

want is greater clarity, they want joint target setting, and theywant to know how well that theyare doing. But they don'tnecessarily want to jumpthrough all sorts of hoops to getanother £200 at the end of theyear."

Dan Pink’s talk at TED, filmed in July2009 on the Science of Motivation,(click the link to watch the excellent

18 minute video)http://bit.ly/c4ytqK as well as beingan enjoyable watch, containsreferences to lots of scientific proof to back up his findings on whyfinancial incentives fail. In hissubsequent book, Drive, Pink citesSeven Deadly Flaws: Why Carrotsand Sticks (Often) don’t work.

They can extinguish intrinsicmotivation

They can diminishperformance

They can crush creativity

They can crowd out goodbehaviour

They can encourage cheating,shortcuts and unethicalbehaviour

They can become addictive They can foster short-term

thinking

It’s interesting to note that in theJanuary 2010 UK Customer ServiceInstitute figures, there are a numberof local service providers who scorevery highly indeed, four in theoverall top ten. We think this isbecause local businesses worry lessabout things like vague customersatisfaction figures, and bonuses,

and more about personal,community connected service. Toooften big brands risk losing thatsense of connected service as theystrive to hit a spurious measure, andthen reward people against it.

Conclusion

None of the research we found isparticularly new. Sure, there are lotsof recent examples of bonuses failingto deliver, and of financial incentivesdriving value destroying behaviour,but the heart of the matter has beenaround for years. It is seductivelysimple to set up a bonus scheme.And it is probably little more thanthis seductive simplicity we seekthrough measures, which meansthey persist to this day.

All is not lost however and through



the dialogue we have withcustomers, we are seeing a change.

Slowly, more companies are realisingthat less measurement leads tobetter results, and less control leads

to more influence. From thatinfluence comes a greater level of trust which manifests itself in greatservice. To learn how we can helpyou do this click here:http://bit.ly/aEexSu

Acknowledgements

Thanks to Peter Massey, JonathanWilson, Darren Cornish, UrsulaButler, and Stephen Holden for

contributions which helped to makethis little project come to life.

I’m also grateful to Daniel Goleman,Richard Boyatzis, Marie Dasborough,Dale Carnegie, Stephen Bevan and

Dan Pink for writing interesting stuff which motivated me to study thistopic.

Thanks also to Leo Sowerby for auseful conversation which helpedbind all this together.

© What Goes Around Limited 2010

Don't Incentivise Me Just Pay Me

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