Is Rewarding Executives on Net Promoter Score (NPS) a Mistake?
If you want management to take customer experience seriously, you have to tie their compensation to customer experience results.
So on the surface, this sounds like a smart thing:
“Medibank boss Craig Drummond has flagged moves to factor the company’s net promoter score (NPS) in the creation of short-term incentives for senior executives.”
There’s one huge problem, though: the words “short-term.”
What is the Net Promoter Score (NPS)?
NPS, for anyone unfamiliar with the Net Promoter Score, is the one-question survey you so often get asked when you’ve just bought something or called customer support. It asks, on a scale of 0 to 10, how likely you are to recommend this company to a friend or colleague.
It was introduced by Fred Reichheld of Bain and Company in 2003. He argued that it was the only number you’d need to predict your firm’s future growth. Because it was so delightfully simple, it caught on big-time, and is now used by huge numbers of organizations to assess their customer experience results.
People giving scores of 9 or 10 are considered “promoters,” 7 or 8 are neutral, and anyone giving a score below 7 is considered a “detractor.” To get your NPS you simply calculate the percentage of respondents in each category, subtract the detractors from the promoters, and, voila, you’ve got your NPS.
NPS can be helpful as part of a tracking program, but it has several weaknesses. Some of them were discussed in these two Frank Reactions articles and podcast interviews:
- Why The Net Promoter Score Is Overrated (& What You Should Measure Instead)
- Time to Stop Worrying About Your Net Promoter Score (NPS)?
What Happens When You Focus on Short-Term NPS Results?
Humans are amazingly talented at finding ways to manipulate systems for their benefit.
By now most of us have had the experience of having a store clerk beg us to give them a 10 when we get our after-the-fact survey. They do this because their employer is using an NPS based reward and/or punishment system.
Personally, I don’t like to give 10s unless I get an over-the-top outstanding experience. From me an 8 or 9 means the service was good. Nobody should get punished for that. But often they are. NPS doesn’t even count an 8 as positive!
NPS, Managers & The Law of Unintended Consequences
Same goes for managers being rewarded based on short-term NPS scores. There are things they can do that will drive up NPS in the short run but hurt the company in the long run. Things like:
- Offering customers lots of unexpected discounts or freebies. Customers will be happy, so they’ll give a higher score. But your profitability will be hurt.
- Pressuring staff unduly. Not only will this result in the guilt-tripping noted above, it will likely lead to higher staff turnover, which will hurt profitability.
- Blaming other departments. This can be trickier, because the customer doesn’t really care whose department is at fault. But if staff have managed to build good rapport with the customer, they may be able to foist blame onto someone else and still keep a decent NPS score. But then that other department and its manager may see their scores drop.
NPS is a Lagging Indicator
Fundamentally, NPS is a “lagging indicator.” It doesn’t give you insight as to how to improve customer experience. So it is about as effective as trying to lose weight just by weighing yourself. If you want to really lose weight (or up your NPS scores), you need to :
- know what will inspire the behaviors that will lead to a better result
- reward those behaviors (whether it be eating fewer sweets, exercising more, or, in the case of NPS, improving your 3Ps of Profit —Promise, People & Process — Read PeopleShock: The Path to Profits When Customers Rule to learn how!)
- accept that this is a long-term effort, not a quick hit. And if you stop the right behaviors when your score gets good, you’ll probably slide right back to where you were before.
We all love metrics (and they are important), and it is great to see companies wanting to make customer experience an explicit part of what management is rewarded on. But, please, focus on the right things. Rewarding based on short-term NPS scores is a mistake.