NPS Blog

Net Promoter, pay and predictable (but unintended) consequences: How to avoid the most common traps

Net Promoter System podcastHere’s how it usually goes. A CEO or division president decides that it’s time to get serious about customer loyalty and decides to use the Net Promoter System as a lever for change. Executives tell themselves that “anything that is really a priority must be part of our goals and incentives,” and they take the obvious first step of setting NPS goals and linking them to incentive compensation—bonuses. Often the link extends throughout the organization, including everyone from CEO down to the frontline employees who interact with customers every day.

What happens next? Well, because it is actually hard to earn customer loyalty, and because NPS is new to them and not yet well understood, employees and their managers begin by criticizing the new metric. When that doesn’t work, they very predictably move on to analyzing in great detail subtle changes in scores, explaining away every low score as either an outlier or a result of some factor beyond the control of their own functional group. Pricing, for example, is a perennial favorite of sales teams, while policies and product features seem to surface regularly in call centers. Inadequate IT also seems to be an easy target.

Eventually, however, almost every company that leaps to set goals and incentives based on NPS in the early days finds that some significant number of employees begin coaching customers about how to respond to the company’s requests for feedback. They start begging for top scores, as so many auto dealers do. In the worst cases, the idea comes from their bosses, who themselves feel frustration with the team’s inability to quickly move the scores. Often, they sanction crafty ways to game the system, such as figuring out how to exclude dissatisfied customers from the survey database.

Sure enough, scores begin to rise—only senior executives don’t really understand why. And the improvement, of course, is wholly illusory. Even more dangerous are the side effects. Customers feel used. Employees feel the company lacks integrity.
Fred ReichheldSo that’s the trap. To learn how to avoid it—or how to escape it if it has already ensnared your company—you’ll want to tune into my latest podcast. Net Promoter creator Fred Reichheld and I discuss the specific conditions that must be met before you link scores to compensation. We also talk about how to fix things if you have done so prematurely. (Hint: The first step is to break the link—but you have to do so carefully, so that people don’t misinterpret the move.)

I’ll leave the details to the podcast. But there’s a fundamental principle here that Fred emphasizes, and that underlies our practical recommendations. People don’t work for money alone. Sure, they have to be paid fairly. But the real satisfactions of a job come from accomplishing something, from serving someone, from feeling like a valued member of a winning team.

“Part of the solution here has to be refocusing the energy on intrinsic motivation,” Fred said to me. “The truth of the matter is that our bonus is not what’s going to make our lives worth living.”

I think that’s why so many successful Net Promoter companies go out of their way to recognize people’s contributions in nonmonetary ways. They don’t just give out the usual pats on the back—they create stories about people and teams who did remarkable things for customers, and they spread those stories throughout the organization. (For a great example, watch this video about TD Bank.) The most powerful form of recognition, moreover, comes from a person’s peers. If an employee regularly wins recognition from peers for living a company’s values, says Fred, that should be part of the permanent record and should figure in performance reviews.

Everyone knows that incentive compensation can be a powerful motivator. But unless companies are careful, they can wind up incentivizing the wrong things and sending the wrong messages about what’s important. That’s why both Fred and I always urge companies to use great care in linking pay to NPS performance.

You can listen to my discussion with Fred on iTunes or through the player below. Click here to browse more Net Promoter System podcasts.

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