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CX Financial Incentives

Customer centricity is largely a cultural affair. If employees at all levels are genuinely passionate about delivering excellent experiences, Customer Experience (CX) will blossom and the agency will thrive. In the WIIFM (what's in it for me) world we live in though, it's helpful to also use cash bonuses to incentivize CX outcomes. Financial incentives are a great way to align the organization around CX improvements and get employees at all levels to row together!

CX financial incentives also enable funding agencies, transit Board members and top transit leaders to incentivize outcomes rather than trying to micromanage specific improvements. When leadership focuses on outcomes, it empowers staff to more efficiently bring about the changes that are needed to achieve the outcomes. If properly structured, CX incentives can also help align staff at all levels around a CX goal by encouraging everyone to pitch in. It can even incentivize support staff in areas like hiring, procurement, and accounting on the outcomes to be achieved.

How should incentives be structured? Before the start of each budget year, agencies should establish clear benchmarks for bonuses to be paid at the end of the year and should set aside funds for this purpose. For example, an agency might promise up to five 1% bonuses at the end of the budget year based on meeting five predetermined criteria such as:

  1. Reducing cancelled runs below 2%.

  2. improving customer perception of personal security by 5 percentage points.

  3. improving customer perception of cleanliness by 5 percentage points.

  4. improving customer ratings of the ease of fare payment and trip planning by 5 percentage points.

  5. improving customer ratings of employee helpfulness and courtesy by 10 percentage points.

In this example, if the agency achieves three of these criteria, then the bonus level would be 3%, and if the agency achieves four of the criteria, then the bonus level would be 4%.

When targets are met, agencies should recognize and celebrate everyone that contributed to the success. And when targets are not met, agencies should applaud the effort and partial progress towards the goal (e.g. we're halfway towards the bonus level - let's keep going!)

Studies have shown that individual bonuses can be counterproductive because they cause staff to compete rather than cooperate. For that reason, it is best to apply incentives across the board to all employees. That being said, incentives can exclude the small proportion of individuals who perform below expectations or are on probation.

Labor representatives are sometimes reluctant to embrace financial incentives because they are viewed as salary increases that are contingent rather than guaranteed. For this reason, bonuses should be above and beyond compensation specified in labor agreements, and this should be clearly communicated to stakeholders.

Management too may be reluctant to embrace financial incentives, especially if there is uncertainty about future funding for transit. To address this concern, agencies could pause the bonus program if the prior year ends with a significant deficit. This allows management to hedge financial risk.

A few more tips:

  • Bonus thresholds should be set at achievable levels, and do not raise bonus thresholds until they are met. If thresholds are not met, roll them over to the next year to keep working towards the goal, and redirect unawarded funds to pay for tangible improvements that help the agency meet the goal in future years (e.g. purchasing improved cleaning equipment to help achieve a cleanliness goal).

  • To ensure financial sustainability and avoid compounding compensation increases over time, structure incentives as year-end bonuses rather than as increases to base pay.

  • Consider including a general clause in your next labor agreement that allows (but does not require) across-the-board bonuses tied to CX performance goals. That way, if extra resources materialize during the life of the labor agreement, then there is a document that acknowledges that employees may receive extra compensation. Be careful to ensure that bonuses do not come at the expense of base salary increases though. Possibly even take a break on the bonus program during years when major labor contracts are negotiated to avoid any perception that the bonus program comes at the expense of salary increases.

  • Hire an independent, outside entity to collect or audit the performance data that determines whether bonus levels are achieved, and ensure that this entity uses a robust, accurate methodology. The use of an independent firm helps stakeholders perceive the performance data and bonuses as fair and credible.

  • For future ballot or legislative revenue measures, consider proposing a set aside for CX financial incentives, say 5% of the total revenue. That way, there will be a dedicated source to fund future CX financial incentives. This also provides assurance to the funding agency and/or voters that your agency will use the funds efficiently and work in earnest to deliver excellent services to the public.

  • For maximum impact, at the beginning of the year develop a detailed plan for how your agency will work to achieve performance targets and bonuses. Talk with employees frequently throughout the year about the plan and their role in it. This will help keep the entire organization focused on the goal and amplify the impact of the incentive program.

In summary, financial incentives can be a transformative and powerful force to align staff at all levels of an organization to improve customer experiences. Use this technique to amplify your CX cultural initiatives and achieve CX excellence!


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