Brakes on CX Bonuses

In July 2020 Forrester released a case study on how as Chief Customer Officer of Volkswagen Australia I ended CX Bonuses, Boosted CX Scores and Profitability.

You can get the report here.

Below is a copy of an article published in August 2020 by CDO Trends which provides an excellent overview of the report.

You can read the original report here.

Why Volkswagen Put the Brakes on CX Bonuses

By Lachlan Colquhoun on August 03, 2020

German car company Volkswagen has a checkered history in Australia.

In the 1950s, Volkswagen cars sold in Australia were actually manufactured at a factory in Melbourne. From 1980, no new Volkswagen cars were sold in Australia. By the 1990s, however, the marque was resurgent down under and is now consistently in the top ten in terms of units sold per year, with around 70,000 cars sold.

Along with many other industries, the auto industry has discovered and embraced the whole idea of customer experience (CX) through its retail channels. This trend sped up through the early years of this decade.

Volkswagen Group Australia (VGA) was no different and introduced a system of bonuses for its staff to achieve designated CX score targets.
The system grew to where VGA was paying out more than AUD 5 million per year in CX bonuses to staff.

This may not sound a lot. But in an industry that is under pressure from declining sales and thinning margins, AUD 5 million is a significant cost item, particularly when skewed to several leading dealerships.

So, with the advice of analyst firm Forrester, VGA eliminated CX bonuses. The result: CX scores went up, and two years later they are still higher than they were when the bonuses were paid.

Don’t pay for CX

Forrester are long-term sceptics on linking remuneration to CX. They published their reportseveral years ago.

Forrester’s VGA case study, by principal analyst Maxie Schmidt, was published late last month and detailed the whole process.

As a result of the Forrester “intervention” at VGA, CX still exists. But the entire conversation is framed differently.

In the era of bonuses, there was a culture where the conversations revolved around a score, and not the customer. CX metrics were linked to NPS scores collected through customer surveys, but the cultural impact within VGA was divisive and the scheme was expensive to administer.

Part of the problem was that the CX metrics were based on a rolling three-month average of NPS survey results, as a way of smoothing out the surveys and — in theory at least — getting a more accurate result. Dealers achieving the stated NPS would receive a per dollar bonus for each car sold during the assessment period.

But VGA’s Jason Bradshaw was always skeptical.

“There was a desire from within the CX division to stop paying for a score because fundamentally paying for a score doesn’t drive cultural change,” he said.

While VGA leadership were concerned about CX scores falling and not having a good way to manage dealer performance, they acquiesced to Bradshaw’s recommendation that ending bonuses would not have any negative impacts on customer centricity.

While some dealers wondered if this meant that CX was no longer important, the point was made that great service should be delivered as standard, as opposed to something dealers did on top of normal work to earn a bonus.

“The reward for delivering great CX isn’t a score or a bonus. The reward comes through profit and loyalty from our customers,” Bradshaw said.

Key reasons for no bonuses

Forrester points to two key insights from the VGA experience as arguments against paying for CX.

First, VGA found that the cadences of the bonuses and investments in CX did not align.

“A firm cannot manage towards CX scores and metrics with a monthly bonus scheme because investments in CX need to happen on an ongoing basis,” said Andrew Sherwood-Jones, national insights and reporting management for VGA.

“A dealership is either doing CX or not,” he added.

Then, VGA found that the percentage of dealers which were actually paying attention to the bonus system was small, so a lot of effort — and resources — was going into a CX system that was not truly organization wide.

“When we still had the bonus and wanted to set a target, we looked at the distribution of dealers on the CX metric,” said Sherwood-Jones. “We found that there was a small portion of dealers that always beat the target. Another share of dealers was nowhere close to making the target.”

“Only 10% to 20% of dealers were on the cusp of making it, and that small share of dealers were really the only ones whose attention we were getting,” he added.

The turnaround

So, in the two years since ending the bonuses, VGA’s CX metrics have increased. Dealers have more money to drive sales, and the entire conversation on a CX culture in the organization has improved. CX bonuses are hard work to administer. Forrester estimates a team can spend up to 1,100 hours a year on administering bonuses, time — and money in terms of human resources — which can be spent elsewhere. The Forrester view is that spending money on CX-related bonuses is a mistake. Organizations implement bonuses often as a default position because they can’t imagine what else to do, but the results — says Forrester — are that many are frustrated or even appalled by the consequences. The final insight: when conversations revolve around a score, not the customer, culture transformations take longer to effect. Bonuses are a distraction and come between an organization and a customer. Ultimately, they undermine good CX by throwing good resources after bad. Photo credit: iStockphoto/Anski
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