It’s no secret that incentives or compensation plans can be a powerful tool for driving desired behavior. This concept is not new – it dates as far back as the Roman Empire, where Julius Caesar developed an incentive plan for his centurions.
Dan’s latest post on Executive Compensation in a Customer-Driven Enterprise leaves little to contest, so it allows me to comment on my favorite reason to use incentive compensation in the first place.
Incentive Compensation Works
For the past six years, I have led the Customer Success and Support team at Xactly, a leading SaaS provider of incentive compensation management solutions. Our vision is to empower every company to incent right.
After being in the world of incentive compensation for more than 13 years, I have witnessed the power of compensation plans to achieve results – positive or negative – based on how the key components are structured. The subtle takeaway is that incentive compensation works, period, end of story. The trick is to incent the right behavior while providing constant feedback and visibility into how one is performing against the goal.
If one of your corporate goals is to focus on customer success and retention, then this initiative needs to be established at the executive level and made pervasive throughout the company. Adding an incentive compensation component to drive customer success and retention is a given (and a must) for every executive in a customer-driven enterprise.
Incent on Pure Customer Retention
If you have a recurring-revenue business model, this practice and belief needs to be the foundation of your company. For example, Xactly’s core values happen to spell out CARE: Customer Focus – Accountability – Respect – Excellence. Our core values are an important part of our company culture. Because customer focus is the first of the core tenets, it sets the tone for everything we do.
Once the culture is established, incentive compensation can be used to reinforce and keep the organization laser-focused on accomplishing your corporate objectives.
I concur with Dan’s comments and beliefs on tying a portion of an executive’s compensation to customer success and retention. In fact, this component should be part of the plan for every employee who is eligible for a bonus. The measurement has to be created in a way that compensates on pure customer retention so you can get a true assessment of the health of your customer base.
This is what Xactly does, and it has worked well to keep our whole organization focused on customer success. Whether you are in finance, marketing, or engineering, each employee knows they can impact churn by doing their individual role well and providing quality work.
I do believe sales is the heart of every company, but customers are your bloodline. The two can’t exist and function in a healthy way without each other. So, to ensure that they operate effectively together, make sure you have a compensation plan that rewards top-line growth while equally rewarding customer success and retention, which will naturally add to your bottom line.