The Unintended Consequences of Performance Incentives

I think we can all agree that buying a new car is one of the most painful experiences you’re likely to have.

But we like new cars. We love new things in general. Driving a new car is fun and exhilarating.

So then why is buying one so unpleasant?

It’s simple. The sales person is probably a commission-only employee and his compensation is based on the profit margin of the sale. Hence, he’s actually incented to sell you the car for the worst deal he can manage. As a result, there’s natural friction between the two of you.

It’s a shame. Automotive manufacturers spend a fortune on branding and marketing to have much of that goodwill and trust thrown away by an over eager sales rep just trying to make a living.

Simply put, the incentive structure is broken.

Unfortunately, frustration with the companies we do business with is a fact of everyday life. Maybe the product fails to meet our expectations. Maybe the sales rep is a little too pushy. Maybe we feel like the ad campaign oversold the services the company offers. In some ways, it feels like we’re in a buyer beware world despite being in the most transparent age in human history.

Maybe I’m naïve, but I do think most people strive to be good and most companies aim to create products and services that make our lives better. That add value. That meet the ad campaign’s and the brand’s core promises. 

So, if that’s the case, why are we so often disappointed?

I suspect that misaligned incentives are often the root cause of many of our frustrations and brand mistakes.

And the problem goes way beyond auto sales.

Think about the last time you tried to call your bank or cable provider. Because customer service is usually in operations, customers have become a cost. Customer service reps tend to be measured on the number of calls they take and how quickly they can get customers off the call. And even worse, often times they’re incented to upsell you.

Think about the things we consider to be normal --- billable hour mentalities, misaligned customer service, commission-only sales reps, and more. These standards came about with good intentions. Maybe. But they place the customer and the brand in direct opposition.

Brands need to realize there is a monumental difference between aligning incentives to performance and aligning them to purpose and problem solving. If you have a purpose and relentlessly follow it, you’re ahead of the game. And if you align your employees’ incentives to further that purpose and you encourage them to be problem solvers, your brand is light years ahead.

Look at brands like Uber, which incents drivers to be prompt and courteous with a customer feedback system that actually means something. Look at QuikTrip, which gets the best out of employees by being one of the few convenience stores to offer legitimate career advancement opportunities. Look at Wegmans grocery and their culture designed to encourage employee engagement and growth, leading to one of the lowest attrition rates in the retail space.

Purpose-aligned incentives can’t be tacked on. They have to be built into the core of what your brand is all about. But it’s never too late for brands to reevaluate the way they do things. It’s never too late for them to change the way they think about what “performance” should really mean.

Because we shouldn’t have to settle for frustration as the norm.

Written by Brian Easter on March 25, 2014


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Brian Easter