Unequal Goals Can Balance Your Business

The holidays are over.  The melody of jingle bells is slowly fading into the background as employees trudge back to work to face the long winter ahead.  This is also when companies experience their annual January headache - the process of setting new performance objectives for their management incentive plan. 

A new year has begun.

Headache?  Most managers would rather focus on closing down the old year and maximizing their bonus calculations.  But at the same time HR starts to compel that attention be paid to managing the new cycle.  Something's got to give, and right now it's usually effective planning.

Which presents a risk.  Because with a substantial payroll expense allocated to management bonuses it is critically important for plan designers and implementers to get this first step right.  Everything that follows after is cause and effect.  Poor planning up front usually means that bonus dollars spent later may reward effort neither anticipated or even necessary.  The results you didn't plan for, or didn't prioritize, won't be delivered.

But somehow the bonus pool of dollars will be spent anyway.  And where does it go?  Perhaps not where and why you had intended - but instead rewarding performance that may not be in sync with broader company objectives.

Let's face it, though - managers enjoy setting objective, quantifiable and measurable goals as much as they enjoy writing job descriptions.  But they don't, do they?  So as an HR Leader, generalist or specialist, you might soon find yourself acting the dentist - pulling teeth, struggling with recalcitrant managers to get proper employee objectives established by the end of the first quarter.

It can be frustrating.

While you're grappling with these reluctant managers, trying to help them get their act together, you should remember a few key guidelines regarding the effective use of rewards to motivate achievement of company goals.

• Focus employee attention on company / department objectives via prioritization.  Set relative weightings to reflect their individual importance to each other (this is most important, this is secondary, etc.).  It would be a rare occurrance when all goals are of equal importance.

• As most employees have multiple objectives, any one target weighted 10% or less of targeted incentive compensation will be ignored, if possible.  Why?  Because you're announcing that this is not an important objective.  And as incentives are all about behavior change, employees may not even cross the street for 10%.  You'll need a bigger carrot.

• Token objectives only receive attention when expected achievement is considered so easy that success would have occurred even without an incentive.  That's wasting money, right?  Don't go there.

• On the other hand, have a care before you assign more than 50% to any one objective.  Employees might figure that exceeding expectations for just one key goal will generate sufficient reward for their efforts.  Then they may not focus on other important business goals.

• Limit objectives to no more more four, else you risk diluting effort and causing an "everything is important, so nothing receives focus" performance year.  The business receives more value for rewarding results vs. activity - so keep the emphasis here.

Human nature suggests that the natural tendency for most employees is to concentrate on the goal with the highest reward and least resistance first.  They may even decide to ignore other objectives - no matter the value to the company - if in their mind the reward for the prime objective makes up for lost opportunities elsewhere.

This is especially true for sales employees, who often ignore small payout objectives in favor of focusing on the bigger ticket reward goals.  So you need to put your money and weightings behind the goals that have the greatest impact on the business.

Bottom line is that you want to avoid disconnected effort.  Your key people should not be keying off on objectives that are less important than those you want them focused on.

Don't let them head left when you want them to turn right.  Your money might take the wrong turn as well.

Chuck Csizmar CCP is founder and Principal of CMC Compensation Group, providing global compensation consulting services to a wide variety of industries and non-profit organizations.  He is also associated with several HR Consulting firms as a contributing consultant.  With over 30 years Rewards experience Chuck is a broad based subject matter expert with a specialty in international and expatriate compensation.  He lives in Central Florida (near The Mouse) and enjoys growing fruit and managing (?) a brood of cats. 

Image: Creative Commons photo by pasukaru76

 

Comments

[Windsor Lewis]

Excellent post on the basics of incentive planning. Thanks!