Every interaction your employees have with customers is an opportunity for your business to make a solid impression. To push employees to go the extra mile, consider a variable pay system, which is pay above the employee's base salary. How much they get, if any, is tied to a performance metric. This could be company-wide (like profit sharing) or for personal merit. You could have employees earn more when they receive positive customer feedback.

However, a program like this can backfire if not backed up with careful planning and a reliable method for soliciting and using feedback. Here's what to consider before getting started.

Variable Pay and Customer Feedback

Employees respond to incentives. So basing some of their pay on how they rate with customers should prompt them to focus more on customer satisfaction.

One option would be to set up a commission-style system where employees earn money each time they take a positive action — like following up with a client after a sale to thank them.

You could also use customer feedback to set up an employee bonus program. For example, after conducting customer satisfaction surveys, give top-ranked employees a prize or extra cash at the end of the month.

Potential Issues

Variable pay is a powerful motivator, but employee conduct can undermine the purpose of this pay practice if it is not properly administered. It could motivate your employees to take actions you don't want. If employees know their pay is based on customer feedback, for instance, they might start begging for high grades. Customers will leave positive feedback on your survey even if they didn't have a positive interaction — and they might ultimately be turned off by the experience.

Employees might also avoid customers with big problems or who seem unhappy because they know it will hurt their ratings. If they answer a call from an unhappy customer, for example, an employee might hang up and pretend the call dropped so that the customer can't get to the survey. A sound pay practice based on feedback should account for these potential pitfalls.

Finally, employee morale could be hurt if the variable pay program is based on factors out of their control. At the end of the day, it's impossible to keep some customers happy, no matter how hard employees try. Even if a customer service representative performs well, a customer may still give a low rating because they are dissatisfied with a product or with a previous experience with another employee. If employees see their compensation fall despite their earnest efforts, they will become resentful. Consider partnering with an experienced vendor to develop and deploy customer surveys that take these potential issues into account.

Creating an Effective Program

Base your program on rewarding actions that typically improve customer satisfaction, not on the actual feedback scores. Make sure these actions are within the employee's control, to avoid any unfairness. For example, make it a goal for employees to respond to customer complaints within 24 hours. Ideally, your employees should solve the problem then, too, but that's not always realistic or possible. But a fast reply does improve the customer's experience and is something your employees can control.

Center the variable pay on something achievable for all employees — for instance instead of giving them a bonus only if they get the highest score of all, reward them for improving their own monthly score.

When you collect customer feedback, ask for more than a numerical rating, leaving space for actual comments. Customers might list specifically what employees are doing well and what they could work on, which can help you improve your employee feedback.

Finally, make sure your variable pay practices meet federal, state and local minimum wage laws regardless of employee performance and be sure these practices are applied equally among your workforce. The key to this approach is to give your employees both what they need to stay happy and engaged as well as what they need to push themselves to the next level of performance.

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This article provides general information, and should not be construed as specific legal, HR, financial, insurance, tax or accounting advice. As with all matters of a legal or human resources nature, you should consult with your own legal counsel and human resources professionals. ADP shall not be liable for any direct, indirect, special, consequential, incidental, punitive or exemplary damages in connection with the use by you or anyone of the information provided herein.

Tags: payroll customer loyalty Customer Relationships Employee Engagement