Giving Tenure Vs. Merit Increases Erodes Productivity in Your Agents


For many of us, this month marks the time of year when yearly numbers start coming in. We get to find out how good or bad our contact centers were, on a yearly basis, and figure out what to do next. Let’s not waste this reflective opportunity, and instead let’s change our way of thinking for the better.

Two numbers just came in for our operations that got me rethinking about the concept of merit vs. tenure pay. One is the amount of our average billable hours for the year. The other is our gross margin for the year.

If you’re a BPO company, have you looked at these numbers for your business? They provide a fascinating, contrasting look at your business in two numbers.

Equalizing for geographic factors (like high-income societies vs. low-income societies and domestic vs. offshore), if your hourly billable rates are high, but your gross margins are low, then chances are that productivity per labor hour is low.

For suppliers, more than likely, your contracts are forcing you to throw extra labor into the system to make up for the gap in productivity, or that attrition is high and you have to keep a deep redundancy hanging around. In other words, you’re providing the same billable hours, but employing more people to do it. That erodes gross margins.

Conversely, if your average billable hour is low, but your gross margin is high, not only do you probably have a great business, but you have a workforce that gives your clients great productivity for each hour they work, but at a low cost.

What’s making this happen? Many things, probably. But once we get past the issue of living wage pay, as I’ve written about previously, we should consider the positive impact of not having tenure raises, and only giving merit increases.

At Fair Trade Outsourcing, we call this “paying for merit and not loyalty.” Loyalty is great, but performance is better.

Some Basics of Merit Pay

At Fair Trade Outsourcing, we have abolished tenure raises, giving merit raises only. This means that the only way for an agent to make more money on a monthly basis is to perform in a way that increases the value of their labor hour to themselves, our clients and the company.

We do this in a few different ways. First, if you acquire new skills, you can make more. In our offshore centers, English proficiency is the clearest way, and we give everyone a permanent raise if they “level up in their English proficiency.” Higher skills equals more money. Done.

Second, we charge our clients no more for overtime hours. We’re not trying to overwork our agents. We’re trying to bring pure economic incentive to their doorstep.

When a client wants overtime, that OT hour is much more valuable to their business, so we want to lower the barriers to buying those extra hours. But we want them to benefit from the increased value of their labor in that OT hour compared to a non-OT hour (25% more in the Philippines, 50% more in Ghana). It’s not like the company doesn’t benefit; we get an extra hour of billing to offset fixed costs.

Third, we have free education programs which help agents build required skills for promotions: think communications, management, and operations skills training. We want them to move up. Of course, they make more money when they get promoted, but they also stay longer.

These three things mean they stop caring about their yearly review, and focus instead on constant, monthly improvement.

How We Got to Minimalism

No, this is not the beginning of some joke about Scandinavian furniture design. I would argue that the current pay structure in many contact centers encourages minimum performance and the accumulation of increased pay through tenure not merit.

Think about your scorecards or your performance policies. Do you throw your agents out if they can’t meet KPI minimums after a certain period of time? What does this encourage? It encourages them to get good enough to meet minimums, and then to stay there, accumulating tenure raises.

In his landmark book, Drive, Daniel Pink argues, based on studies done at MIT and other universities, that the true motivation to do good work is limited to three, and only three, possibilities: autonomy, mastery and purpose.

Pink suggests further that you should pay enough “to take the issue of money off the table.” Are you doing that? If you are, then that’s a good start. However, by giving raises only once a year, you’re ignoring the three other key ways to motivate people: autonomy, mastery and purpose, and thus ignoring a host of motivation tools.

What’s the result? Agents are disconnected from these three things and see no way to connect to them. So, you get minimalists in your labor pool—those who figure out how to survive doing minimal work but have no motivation to do more and excel at work.

Intrinsic Motivation Is More Productive: Autonomy, Mastery and Purpose?

Autonomy may not be practical in the call center environment, or is it? Think about your best-performing agent. Are you always on top of them, engaging with them? Or do you leave them alone to do their job and everyone is satisfied with the results? When you think about someone’s performance, maybe you should be thinking about how to get them to a defined level of autonomy—and set that up as a goal from the start.

Mastery is another very interesting motivator. Who doesn’t want to be good at what we do? While I personally believe that comfortable is bad, I’ve watched too many people’s lives unravel when too many aspects of their lives become unstable, and know that all humans need some stability. Why can’t that be at work and what does that mean?

Are you thinking about whom to promote? Typically, we want to pull our top performers up the ranks. Why? Because they’re good at what they do, and if we ask them to manage others, they can probably deal with the initial discomfort of having to learn and exhibit new skills in a new position. And in the process, what are they doing? They’re working toward mastery in their work lives. That’s a good thing; we should be doing more of that.

The last motivation is more elusive: purpose. We’re coming off a period of economic history in which profit was widely seen as sufficient purpose. It’s not, and your people never thought that. Make sure to connect the work you do to some bigger themes and help your agents understand how their role positively contributes to the world.

Merit Pay Opportunities Are All Around You

How can you connect merit pay to promote these three themes within your workforce: autonomy, mastery and purpose?

First and most obviously, you have to abolish tenure raises. They’re toxic and promote “sitters” who are not looking to move forward in their lives and careers. They may positively pad your attrition rate, but they will also do that even if they get promoted.

Second, define autonomy within your environment. Once you do, I encourage you to make experience levels within a particular position—think AHT mastery, FCR mastery, etc. Then, tie those numbers to a defined career path—CSR I, CSR II, etc. This will feel very familiar to you—because as someone achieves more, they deserve more pay.

These levels will also feel very familiar to your compensation analysis—but make sure they are NOT tied to tenure. Be careful to measure performance in successive months and not years. Largely, I believe that year is a stupid time denominator for the modern call center environment.

Third, tie autonomy to mastery. This means making sure that there’s somewhere for the Agent to go after CSR III, whether it’s into management or into even high-value and paid work (maybe on another account, etc.). I believe that there is a natural progression from autonomy to mastery. Define what mastery is and then compensate accordingly.

Fourth, if you have no way to compensate for better service to the purpose of the company, that’s OK. One way you can promote purpose and merit increases is to pay more for the achievement of skills—going back to what we do for increased English proficiency. If the company has a purpose that doesn’t resonate with agents, their own personal development is probably the most purposeful thing any of us will do in our lives.

Include COLAs in Your Compensation Structure

I’ve written about COLAs a few times from a few different angles, but here’s an important summary when you consider moving away from tenure increases for your agents.

It’s not realistic that all agents will perform in a meritorious increase environment. Some will stay in the same position for some time. However, as members of our societies, the economic truth is that inflation affects us all.

So for those who receive no merit increases in a year, a cost of living adjustment (COLA) is appropriate. A COLA is an economic mechanism whereby a wage earner receives a percentage increase in pay equal to the inflation rate of their local economy over the past year.

Its purpose is to prevent the erosion of their economic power by earning the same thing this year than they did last year. In short, it ensures that they do not fall behind, economically speaking. They are not getting ahead with a COLA (that’s what merit increases are for), but they’re not falling behind.

Inspire Drive

If you’re not yet a believer in merit vs. tenure increases, I hope this article has at least gotten you to reflect and think about the year ahead.

Going back to Daniel Pink, when an agent knows that they have opportunities to become autonomous, it means that they will have trust. If they can achieve mastery, it means that they will have pride. And, if they can achieve purpose, even if it’s their own, it means that they will have drive.

As Pink made us all think, if you can inspire drive, you’ll get a performing workforce, your clients will get value, and everyone will profit. Not a bad way to live.

But first, you have to kill tenure increases because they send the wrong message.