Benefits and Compensation

Incentive Compensation: Customer ExperienceTranslates to Cash for Airline Employees

American Airlines made the decision to keep flying, too. But employees weren’t happy, and customers complained. The airline needed to find a way to solve both problems.

Mark Mitchell, managing director of American’s Customer Experience area, takes us back:

“In the middle 2000s, maybe 2003 to 2006, as American worked very diligently to take the right path financially and not go through the bankruptcy courts, we preserved cash and ceased investing in some of our core products. Our customers, our employees— maybe both—began to see that maybe we weren’t as customer-focused as some of our competitors.

“So we needed to make it very clear to our employees and our customers that from company leadership all the way down to our frontline customer contact employees, we were jointly committed to moving that dial. We did care about customers. We did care about listening to our employees and providing them with the tools that would help them take us in the right direction.”

Extra Pay for 69,000 Employees

What arose from that focus is American’s Customer Experience (CE) award, just one of the airline’s variable pay components. They announced in August 2010 that the program had paid out again, for the sixth consecutive quarter. Approximately 69,000 airline employees received $10.4 million, rewarding their efforts during the second quarter of 2010.

As in any effective incentive compensation program, American first determined the program’s goals. The ultimate goal, the airline decided, is pleasing their customers.

“As we got started,” says Mitchell, “we had the belief that we needed to develop a system that would resonate with our employees. We wanted them to say, ‘If I do certain things, our customers will notice the impact in a positive way, and I will get some kind of recognition or reward payment.’ And, of course, that becomes a kind of circle: ‘I do this, the customers like it and it drives more customer loyalty, and the customers then spend more with us.’ Our employees should be recognized and rewarded for that.”

The level of customer satisfaction is directly tied to employee performance in three major areas, Mitchell continues, and the CE program is designed to capitalize on that fact.

“We divided our customer contact employees into three fundamental groups. One delivers the airport experience, one delivers the onboard experience, and one we call our “likelihood to recommend” group—that would include our call centers, our Advantage folks, our online staff, product resolution for baggage, and things like that.

“We created customer surveys focused on these same three metrics. We get about 50,000 customer surveys back each quarter. Each customer gets either the ground survey or the onboard survey. Each of them dives into a lot of pieces of our business, but there are overarching questions that we ask. One of them is, ‘Based on this flight today, how likely are you to recommend American Airlines to a friend?’ Another is, ‘Based on today’s flight, how would you rate your overall airport experience?’ And finally, ‘Based on this flight, how would you rate your overall onboard experience?’”

The CE program is based on responses to those questions. Mitchell explains that any statistical improvement is celebrated. “The program is based upon our employees’ ability to deliver, and it’s based upon continuous improvement. If we just get one point better, or even a tenth of a point better than the previous year, the reward pays out.

“Of course, we would love to improve at light speed. But if we improve in incremental amounts each month versus the same month in the previous year, and we set that tone and philosophy in our company for the next several years, it will take us back to a very good place in the eyes of our customers.”

Can You Apply American’s Lessons?

“But we’re not an airline!” you may be thinking. But that doesn’t mean you can’t apply the same principles.

The important take-away here is to view incentive compensation as a way to drive business results. Determine what is important to your customers, and use those results to create goals.

Divide employees into business groups. Let the employees have a voice in what really matters to your customers; you may be surprised by their suggestions.

“What we were looking for with the CE rewards program was an opportunity for our employees to earn beyond their base compensation,” says Mary Kay Gribbons, managing director of Compensation and Retirement at American.

“Clearly, we’ve been through some hard times in the airline. Our employees have taken pay cuts through the years, and this is a way for them to try to earn some back.

“But it was important for us to do that in a way that is impactful and meaningful to us as a company.

“One of the difficulties we’ve had through the years is trying to find the right line of sight, to tie any additional compensation to what is important overall. We found that the customer experience is a way for them to latch onto something.”

Gribbons admits that there was some initial skepticism about the program. “It’s a gradual buy-in,” she says. “The first check for $50 doesn’t mean that much. But then you get another check and you start realizing you’re getting $150 every quarter. It starts developing meaning.”

Rhonda Rathje from American’s Corporate Communications adds, “We continue to get feedback from employees about how much they like the program.”

And Mitchell says, “We hear from large segments of our employees who are recognizing that their work is being recognized, and the money gets back into their pockets. They are very much appreciative that we’re moving in that direction. It’s a work in progress and a long journey, but nonetheless, we are very encouraged by this kind of short-term success in the eyes of our customers and employees.”

Reasonable Standards, Communication Important

Gribbons says it is important to set reasonable standards in an incentive program. “We didn’t set the standards so high that we were never going to achieve them,” she says. “We tried to set the standards to continuously improve. We didn’t expect to reach our ultimate goals overnight. The standards will continue to get tougher. That goes back to raising the bar of what we need to be doing for our customers.”

And once you’ve created an incentive program, your work is just beginning. Rathje cautions that you can’t neglect the communications piece. “It’s a challenge, because our workforce is really untethered. They don’t sit in front of a computer all day to read the great stuff we send out from corporate communications.

“They’re serving our customers; they’re putting bags on planes. It can be hard to reach them, so we try to think of as many different ways as possible to communicate with them. That’s why we have celebration days every quarter. We want people to stop what they’re doing, take the time to be handed their check, and be thanked for the work they did.”

While the group is pleased with employee performance, there is still room for improvement.

“The CE program is paying nicely, but we’re still not paying the maximum amounts,” Mitchell says. “There is some upside. The $10 million we recently paid out is about half of what it could be. We’re excited that we’re partway there.”

Leave a Reply

Your email address will not be published. Required fields are marked *