May 11, 2016
Few companies actually tie employee incentives directly with performance measures like comment cards or customer satisfaction ratings. Instead, managers or employees are typically rewarded when their company does well financially.
Now there’s evidence that employee incentives tied to nonfinancial performance measures (like comment cards), cause companies to do better financially. Researchers examined 72 months of results for a hotel chain that created a new incentive program.
THE INCENTIVE PROGRAM
In the past, the hotel rewarded managers based on how much money the hotel made. Customer satisfaction had nothing to do with employee incentives. Recognizing that their incentive plan wasn’t working as hoped, hotel executives created a new incentive plan with a different structure. While financial results were still considered, the hotel now included two new non-financial measures. They tracked customer complaints and “likelihood of return”. Managers received the maximum bonus if the hotel achieved both their financial and nonfinancial goals. In other words, customers’ opinions now counted for something.
The program caused an increase of $1.56 total revenue per available room. Total revenue and profit increased more for that company than for its competitors. And customers were happier and more satisfied. Why? The researchers believed that the new incentive program made customers happier because employees tried harder to decrease complaints and increase repeat business. This attitude boosted sales and revenue, and increased the bottom line for the hotel itself.
The researchers made a number of other observations based on their study:
- Implementing an incentive plan based on customer satisfaction probably will increase customer satisfaction.
- Most of the increased profits came from repeat business.
- Improvements in customer satisfaction caused financial improvements about six months later.
- Because of the six month lag period, a company could possibly use customer satisfaction measures to predict future performance.
- There was little evidence that increased customer satisfaction was associated with increased operating costs.
- Companies don’t need to invest in complex survey sources or expensive information gathering techniques in order to benefit from this kind of incentive plan.
In short, measuring and rewarding nonfinancial performance (such as likelihood of return and number of complaints) induces managers and employees to do the right kinds of things to make people return. This helps companies make more money. Those comment cards may be more valuable than you think.