Motivating CSMs: An alternative to incentive compensation

At Gainsight's Pulse 2018 Conference, I am debating the pros and cons of incentive compensation for CSMs with two Customer Success Leaders (Chris Doell and Chris Krystalowich). To give them a 'fighting chance' in our debate;) I wanted to share my argument in advance. This is based on tons of help from the entire Customer Success team at Culture Amp. Thank you Steve Hopkins and team!

update from the conference... I won the debate based on the audience vote:)

Having come from Box where we innovated on incentive compensation for CSMs, I have seen the pros and cons of incentive compensation. At Culture Amp, I have gained a deeper appreciation for the power of internal motivation and how, with the right culture and team structure, you can create greater motivation for your team with a base compensation model.

Most importantly, a base comp model aligns your team's success with your customer's success

Incentive compensation does not provide the right motivations

Motivation is critical for success. However, incentive compensation (an extrinsic motivator) has several challenges:

Extrinsic motives are less effective than intrinsic ones: In the book Primed to Perform, the authors study what drives the highest levels of performance across the six reasons that motivate people to work. They found that, "...in most cases, having a sales commission decreases the total motivation of the employee".

"After controlling for tactical performance (activity), those with high ‘extrinsic’ motives (i.e. compensation) produced less revenue than those with high ‘intrinsic’ motives (enjoyment, purpose, and development).” Doshi & Mcgregor (Primed to Perform)

This may sound counter-intuitive but one of my favorite studies, of after-school pickups in Israel, illustrates this phenomenon well. In that study, when a fine for late pickups was added, the number of late pickups went.... up!

Extrinsic rewards don't necessarily drive the right behavior: Our compensation program should incentivize our teams to work towards the success of the customer and company. However, extrinsic rewards motivate individual performance which, while generally aligned with company / customer goals, sometimes is not. One great example of incentive comp gone wrong is the fake account scandal at Wells Fargo.

“The problem with making an extrinsic reward the only destination that matters is that some people will choose the quickest route there, even if it means taking the low road.” Daniel Pink (Drive)

Compensation is not highly correlated with engagement and motivation: At Culture Amp, we survey millions of employees at over 10,000 companies on the topic of employee engagement. We consistently find that compensation, while sometimes rated low, has a low correlation with engagement. 

The top predictors of employee engagement are: learning and development, leadership, and service and quality focus.

Data limitations will tie you in knots calculating CSM incentive comp

In customer success the link between action and impact isn't alway consistent. Below are four key challenges I have encountered that I believe limit the effectiveness of incentive compensation programs for CSMs and, in some cases, create negative consequences:

Aligning Portfolios: You are constantly a) adding accounts b) having accounts grow c) (in rare cases;) churning accounts d) adding new CSMs e) seeing CSMs depart/get promoted/grow into other departments. All of these combine to make it impossible to keep CSM portfolios intact long enough to measure impact from their activity.

Trailing nature of retention: If you incentivize your CSMs on retention (the logical metric to align incentives) you must look at performance over a long period of time. However this view discounts heavily current CSM performance.

Can't capture full scope of role: A CSM’s role, done right, is complex, mutli-faceted and hard to measure. To name just a few of the thing a CSM does that are hard to measure a) providing feedback to product b) engaging customers in the community c) developing custom champions d) plugging holes in the product....

A CSM’s role, done right, is complex, mutli-faceted and hard to measure.

Action ≠ Retention: A CSM can do everything right and you can still lose an account. Instances of CSMs identifying risk early, working to develop champions, leverage internal resources, and justify ROI only to still have accounts churn are too numerous to count. If you make exceptions for these you start down a slippery slope but if you do not, you risk demotivating your CSMs.

Base comp provides a better model for your team and customers

Eliminating incentive compensation empowers your team and makes your organization more customer centric. Here are four key areas we have seen a clear impact:

Teamwork: At Culture Amp, we don't have individual account ownership in CS. Instead, accounts are worked by regional teams. If one CSM is overloaded another is there to help and ensure we are providing the best service to each account.

Innovation: Without strict account portfolios, we have been able to act 10x faster on new ideas. For example, our SMB customers are serviced in a scale-touch manner and we are constantly testing new ways to automate recurring tasks for our CSM team.

Talent: Given our collaborative, innovative, and empowering model (across all teams), we are able to attract CSMs with deep experience in our sector and passion for the customer.

Customer Experience: At Culture Amp, compensation and portfolios does not drive the customer experience. See my article on how compensation can prevent doing the right thing for the customer

When I joined Culture Amp I tried to shift our vendor relationships from Australia (where our home office is) to San Francisco (where our growth operations is based). None of our key vendors were able to do so because their teams were not empowered and their comp model prevented it.

Community: We drive top of funnel action and customer retention through our events and educational content. Our "People Geek" community is contributed to by everyone in the company. The value it provides to our CSM team is huge but it is impossible to incentivize people with money to achieve.

Our Playbook

To drive intrinsic motivation with a base comp model isn't as simple as denying CSMs upside. It takes a lot of thought but here are a few of the key building blocks we have developed:

Fair Base Comp: We target our base comp to provide a similar on-target-earnings to the market for similarly experienced CSMs.

Metrics: Money in our model isn't the motivator but winning is. Because our team has no incentive compensation doesn't mean they aren't motivated to hit goals. To help them track success we share metrics and work with the team to quantify their impact on customers.

One of my favorite metrics to hold teams accountable on is risk identification. Whether they churn is often outside of CS/AM control but identifying the risk and proactively working it is 100% within their control.

If a risk is identified months/quarters in advance and is being discussed and mitigated, the CSM has done their job. If a risk is identified weeks before the churn they did not.

At Box we did a world class job at tracking how long in advance of a churn a risk was ID'd and made sure that the entire company was working together to mitigate the risk, including leverage Aaron and his powerful connections. We've continued to innovate on this at Culture Amp.

Team Model: We foster collaboration through cross-functional teams. Unlike most companies, at Culture Amp, our CSMs work in teams with account managers, account executives, sales development, and marketing. This team-of-teams model is critical to our success

Feedback: Feedback is at the core of Culture Amp. It is one of our core values and our product enables any teammate at anytime to solicit action-oriented 180° and 360° feedback.

Operations: We work hard to provide our team with the best possible data, systems and processes. Knowing they can count on operations to help them spot risks and quickly respond helps amplify their work every day.

We hope this article was helpful as you think through your CSM compensation model and look forward to hearing about your experiences. No one model is right for every company, particularly as the CSM role differs greatly depending on the nature of your product.