By Lauren Costella
Editor’s note: the question of if and how Customer Success Organizations and Individual Contributors should have a variable compensation component is hotly debated in the community. There is no one-size-fits-all answer; rather, each organization must decide what will support their business goals. Here, Lauren Costella from The Success League’s Advisory Board makes a compelling case against; earlier this year, our CEO Kristen Hayer wrote at length on the case for.
Driving behavior through compensation strikes me as a mission-critical topic, and yet, we aren’t spending enough time exploring and evolving it in not only Customer Success but in our businesses as a whole. Often, in Customer Success, I hear leaders debating the “how” instead of the “why”.
For example, many times the discussion of compensation in Customer Success turns into a philosophical debate of whether Customer Success Managers should be responsible for growth, which inherently includes upsells. If they are responsible for growth and quotas, should they earn commission or some kind of bonus on it? How does one set that up? And then down the rabbit hole we go...
But this is where I ask all of us to pause and take a step back. Why are we incentivizing our employees with bonus and commission structures at all? Should we do this in our businesses in any department (and yes, even Sales)? Why?
And this, my CS Leaders and friends, is where I recommend reading the book “Drive” by Daniel Pink. In his book, Daniel challenges the idea that the way to “improve performance, increase productivity, and encourage excellence is to reward the good and punish the bad.” In other words, he believes the practices of driving behavior through carrots and sticks (i.e. carrots “sell more and you can buy a new car” and sticks “don’t sell enough and you won’t be able to feed your kids”) are antiquated and outdated.
He discusses further the importance of intrinsic motivation versus extrinsic motivation for different types of work. He points out that compensation structures that support extrinsic motivation for tasks that are “less algorithmic in nature” (i.e. not repetitive tasks, which is pretty much 70% of all job growth now), can actually be demotivating to employees, limit creativity, and “impair performance.” Sounds like the exact opposite of what we want, right?
He challenges us to “upgrade” to three things:
Autonomy - the desire to direct our own lives
Mastery - the urge to make progress and get better at something that matters
Purpose - the yearning to do what we do in the service of something larger than ourselves.
And you know what? For the sake of our customers and our businesses, I absolutely agree with him! To be customer-centric, incentivizing through compensation behavior around our own business goals and not “customer” goals can and does create the opposite effect of what we want to drive. And this rings true across the entire company, not just Customer Success.
Striking the delicate balance between the needs of our customers and the needs of our business and driving that internally and externally in a scalable way is anything but turnkey and algorithmic. And this kind of working requires thinking outside the box to get right and yet, incentives for retention and net retention or even sales quotas alone could, in fact, create the opposite effect.
Let’s play this out. When we compensate a CSM based on a certain growth goal. If they hit it, they get a bonus. If they don’t hit it, they don’t get that bonus (carrots and sticks).
Have you ever experienced a CSM pushing Product to build XYZ because the customer will churn? Or have you ever had a CSM save a poor fit customer because it helps to hit logo retention? Or has your business held a customer to staying in their contract (either auto-renew or first year) even though it’s not a good fit or right time? We already know these scenarios don’t play out well. In fact, these types of scenarios are the SAME ones we challenge when “sales” sells the wrong customer or the product team must build XYZ to close the prospect.
And so I ask: why does this happen? We can usually pinpoint the behavior in Sales to quotas, but I agree with Daniel Pink. It’s not just a sales issue, this is an incentive based compensation structure issue. If we took “pay” off the table, would we see these scenarios play out differently? Would Customer Success be pushing the product team to build that one feature to “save” that threatening customer? Would Sales push getting that poor fit customer to close, if it had nothing to do with his or her compensation?
Just like anyone, I run into the difficulty of thinking through these various scenarios and playing them out. Many times, I default to just staying the course of incentive-based pay - ie. carrots and sticks - because it’s known, it’s easier, and we’ve seen it work. But is that enough? Do we know it works better than other ways? I can’t be sure.
GoodTime has a performance based incentive structure tied to hitting specific business goals. Interestingly, we do incentivize around a single TEAM metric. Customer Success - which includes an onboarding team, account management team, csm team, and support team - are all tied to Net Retention. That’s it. It doesn’t matter what each individual person’s role is or how each person’s portfolio performs. We either win as a team or lose as a team - just like in sports. It doesn’t matter if you score the most points in a game and your team loses. We all still lose. The team-based approach has driven team behavior for sure! We work together to help each other and hold each other accountable to hit the end goal.
Where this breaks down is at the highest level. Each department has one metric to which they are holding their team. The problem breaks down when there’s a conflict in achieving one metric over another. For example, do we build this one feature to close more new logos? Or do we build a different feature to save 10 customers? These performance based goals tied to compensation lead teams down a path of fighting for “their” needs, not the customers’ and not our business.
I certainly don’t have the answer, but I do step back to think, if we did take “pay” off the table and separated pay from hitting performance metrics, would we see a different result? Would we see teams working more cross-functionally together to achieve high goals and long term goals because they are intrinsically driven to do so?
I think we would! Teams would no longer be focused inward, but outward and toward the customer. We’d be motivated to experiment, and find the right answer using all resources, not just a few. We’d work, try, succeed and fail and create the path toward bigger outcomes of our business and customers rather than go wherever team or individual compensation structures drive us.
So, in my humble opinion, as leaders I implore you to look at the underlying question of whether we should use compensation to drive behavior in the first place before we talk about how we set up an incentive structure. We must work with our fellow strategy teams and use our voice at the table to (as we say at GoodTime) “challenge the status quo” and examine whether we are actually hindering our success, customers, and business by putting pay for performance at the center of our strategy. Let’s leave incentive based pay behind and tap into the intrinsic motivations of our teams!
The Success League is a customer success consulting firm that helps leaders build and develop top performing customer success teams. We offer short-term consulting engagements that can kick-start your planning efforts, as well as coaching for leaders who need some weekly advice. Check out TheSuccessLeague.io for details.
Lauren Costella - Lauren is a change agent, communicator, leader and passionate champion for Customer Success. When she’s not working as the VP of Customer Success for GoodTime.io, you can find her serving as an advisor for The Success League, a board member for the Customer Success Network, and blogging on the CS Playlist. Lauren has her MA and BA from Stanford University. She was a former USA National swim team member and enjoys staying active in the Bay Area.