Magazine Article | October 1, 2018

Customer-Facing Compensation, Outcomes, And The Ignoble Definition of Culture

Source: Software Executive magazine

By Nicolle Paradise & Dr. Kristin Walle

Within SaaS organizations, customer-facing employees should be rewarded — not incentivized — by their compensation plan, and that means they should not carry growth quotas.

The gong is ringing again. The Pandora station playing the band Poolside is being overshadowed by the sound of an overly aggressive gong mallet. Did sales close a new deal? Did customer success meet the upsell quota? Whatever the revenue milestone, the gong has been particularly active this week, and with each ring, we wonder aloud what it’s meant to reinforce and what that reinforcement really says about the culture of this not-so-new startup here in Silicon Valley.

We’ve long been fascinated by the complex intersections of compensation, measurable outcomes, and leadership’s responsibility to balance each of those for creating and sustaining a company culture. While compensation is designed to motivate behaviors, is it true — or untrue — that customer-facing employees can maintain the best interests of customers, while being compensated on the top-line growth of a company?

For sales within the SaaS industry, that answer is (mostly) “yes,” it is true. For the postsales world of customer success and specifically, the customer success manager (CSM), that answer is a resounding “no” when compensated on top-line growth. To understand why that is, we first have to examine the fabric that connects assumptions and compensation: company culture.

Company culture, shaped foremost by executive leadership teams, signals to employees how to interact, what to value, and how to make decisions. The foundation of culture is ignobly assumed as soft, fluffy, and measured via the volume of perks (think: ping-pong tables and gongs). This is inaccurate.

Company culture draws its foundation, either explicitly or implicitly, from the percentage of business objectives that are focused on growth (top-line) and what percentage of the business objectives are focused on profitability (bottom-line). How these business objectives are compensated for throughout the organization is paramount, so that the correct behaviors are exhibited and the intended outcomes realized.

Particularly within SaaS organizations, customer-facing employees should be rewarded — not incentivized — by their compensation plan. Sales is rewarded for selling: it’s their core remit. CSMs are rewarded for retaining (which yields a reduction in churn): it’s their core remit. Social media sites and customer success conferences are filled with varying levels of leadership recommending the opposite: that customer success should carry growth (top-line) quotas. Are we positing that those opinions are simply misguided? No. Our position is that they are entirely, and without exception, wrong.

Depending on which study you prefer, the financial investment for acquiring a new customer ranges from five to 25 times more expensive than the investment required to retain an existing customer. Why then would a leadership team create a culture that incents a CSM on any other metric than one that encourages full and undivided fanaticism toward retention of existing revenue and consequently, reduction of churn? This approach is financially beneficial for the company. When communicated transparently, it provides a deeper level of trust to customers that the company they engage with has their best interests in mind, both in value delivery and customer ROI.




"Why then would a leadership team create a culture that incents a CSM on any other metric than one that encourages full and undivided fanaticism toward retention of existing revenue and consequently, reduction of churn?"

 

 

A SIX-POINT EVALUATION FRAMEWORK

As we examined the fabric that connects assumptions and compensation — company culture — questions around how to balance the company success and the customers’ success arise. How might leaders ensure that the right outcomes are met, for both the company and the customers, and be able to course-correct when not? We recommend a six-point evaluation framework for achieving this balance:

  1. How closely you connect goals and financial targets is important.

While we typically look to drive a specific end result, such as number of referenceable clients, what is the behavior we are incentivizing? And can that goal be measured against a financial result? As it’s said, “If you can measure it, you can improve it.”

  1. Simplicity is key.

Is the connection between company performance metrics and customer value delivery simple to understand? How easy is it for a customer- facing employee to understand if they are meeting the objective?

  1. Ensure the performance criteria is valid.

Is what you are measuring connected back to what you said you would be driving strategically? If it is a revenue measure, is the performance metric really measuring revenue output? Is the department or business unit able to recognize the output back to the broader company strategy?

  1. Culture matters.

Does your company culture balance both quantitative and qualitative measures? Is one more important than the other? Why? What are the qualitative cultural measurements that may guide an employee’s behavior to make the right set of decisions in the best interest of the customer? What are the measurements that tie back to the company’s beliefs, purpose, and core values — those which guide the employee’s behavior to make the right set of decisions for the company?

  1. Ensure that governance controls are aligned.

Who is in charge of governance related to company and customer policies? Are controls aligned within just the department or also aligned with the broader company strategy? Do the policies provide enough flexibility so that customer-facing employees can respond to customer needs, without harming the company’s financial performance?

"Particularly within SaaS organizations, customer-facing employees should be rewarded — not incentivized — by their compensation plan."
  1. Be flexibile and adaptable as the company grows.

As a company matures, what was once able to be discussed among a few individuals, now may expand to many individuals. Equally, practices that were ad hoc may need to be formalized via governed processes. How will the leaders manage through times of accelerated growth? What needs to be matured through the natural organizational life cycle to maintain a culture driven by values and a unified sense of purpose?

While there is no single methodology encapsulating what company culture and its core values ought to be, how each of these are answered should be directly in line with the company’s culture relative to performance, strategy, and execution. On this subject, Tony Hsieh, CEO of Zappos, said: “We believe that it’s really important to come up with core values that you can commit to. And by commit, we mean that you’re willing to hire and fire based on them. If you’re willing to do that, then you’re well on your way to building a company culture that is in line with the brand you want to build.”

This unconventional business style has established a world-class company culture and an unparalleled customer service reputation at Zappos. Leaders hire, fire, and they themselves are measured against those core values. The result is that Zappos’ customers trust that any member of the company has their best interests in mind. Culture, as it turns out, isn’t so soft and fluffy; it’s good business. Zappos was acquired by Amazon in 2009 for a reported $1.2 billion.

Our call to action for you is to deeply consider the value drivers associated with employees who are rewarded for — not incentivized by — their compensation plan. Sales is rewarded for selling: it’s their core remit. CSMs are rewarded for retaining: it’s their core remit. By following the recommendations in this article, clarity can be gained among the complex intersections of compensation, measurable outcomes, and leadership’s responsibility to balance each of those for creating and sustaining a company culture.

Equally, we hope we’ve convinced you that if gong ringing is required at your SaaS company, perhaps try a softer mallet? We’re trying to enjoy our Pandora station over here.

NICOLLE PARADISE is senior director of customer experience at ADP, which has 58,000 employees serving 700,000 customers globally and $12 billion in annual revenue. Prior to ADP, she was head of customer success for a Silicon Valley FinTech SaaS startup. She is a keynote speaker on CX and leadership and is head of experience for TEDx San Francisco. She holds a bachelor’s degree in business management and more information can be found at: nicolleparadise.com.

DR. KRISTIN WALLE is a division vice president of Global Money Movement & Compliance / Shared Services Compliance Solutions at ADP. In addition to her work at ADP, she coaches executives to increase their leadership capabilities, developing high-potential leadership teams and coaching individual leaders to achieve positive results. She holds a doctorate in organizational leadership from Pepperdine University.