Are you satisfied with your performance goals?
Over the years I have worked with many clients to create incentive and bonus plans based upon the achievement of individual, unit or company goals. In such cases, a goal is simply a pre-set expectation of performance—say 5% revenue growth. The achievement (or sometimes partial achievement) of that goal or expectation will allow the employee-participant to earn an incentive or bonus. It is a relatively simple and well-tested concept (and tool).
I have often had the opportunity to speak with clients who had just implemented a sales-employee or manager incentive plan where payouts were now determined by the achievement or revenue or other annual goals. While the plans generally seem to work as intended, there is often surprise on the clients’ parts regarding the complexity of goal setting, reporting and maintenance. This is a particularly common feedback and observation when a company begins using performance goals to determine employee pay for the first time.
What creates such mixed satisfaction with both pay-based goals & goal-setting? In my experience, most dissatisfaction is the result of the perception of inaccurate (or bogus) performance-goals, and ultimately employees perceiving they are being paid unfairly –largely as the result of those company goals. Generally this is the result of three culprits. Let me explain each and how some companies adjust or cope:
- The long-hidden problem syndrome—“You coded that breakeven customer into the wrong account, again! It does not belong with my accounts—it belongs to Jerry! You always do it wrong!” But, it did not really matter until you started to have a territory profit goal, and you are going to be paid on it. In fact, the miscoded revenue (albeit unprofitable) may have increased someone’s pay in the past.
So, when you set the year’s sales & profit goal, this long-standing error was undermining the quality of the goal from the first day (or transaction, that is). While some will complain that the goal-setting was at fault, it really is record keeping.
Experienced companies realize that these type of errors exist and the new performance goals and pay plan are simply bringing them to the surface. Generally at the 6-month mark, it is strongly suggested that all “errors” be identified and fixed. Then, steps may be taken to adjust the annual goals, as required. [After these 6-month adjustments, no more discussions on the subject of goal adjustments are tolerated.]
- “We never really meant it before”—many organizations build extensive business plans every year. Some are laboriously built by staff or the sales force from the ground up—customer by customer. The well-thought-out outcomes of this process generally (often) are used to set annual performance goals throughout the organization.
While these goals may be considered “solid” within the organization, they are really untested until tied to the outcomes of a pay plan. Missing plan or a goal by a percent or two generally does not really mean much until it starts to cost somebody a $10,000 bonus check.
While the goals and goal-setting can be blamed for a lack of “fair” employee bonuses, they may be just reflecting (and reporting) performance patterns that have occurred historically for years. They only seem “unfair” because this time there are consequences to less-than-stellar performance.
Smarter companies will sternly ignore employee requests for the inevitable goal adjustments during the year (unless caused by acknowledged serious errors), and admonish managers or the sales force to pay more attention to your goals when they set them next year. [“But, do not dare get caught sandbagging.”]
- One size fits all—some companies chose to set all annual goals at the same performance level. This is most often seen in the case of the sales force. For example: a company may simply say every territory is going to grow by 5% in net revenue this coming year. This generally is the result of the lack of a process or technique that allows goals to be accurately or uniquely set. The all-territory goal will often be a reflection of whole-company expectations—and is really a pretty simple way to do it.
The outcome of such a goal-setting process is that about ½ of your sales reps will see their goals as too soft (and OK with them, but not the company), and the other 1/2 will see their goals as (much) too hard and therefore unattainable. Neither situation is good for the company and can lead to constant grousing about bad goals by part of the sales force. In reality they are not bad goals, they were just never actually set.
The solution to this problem is straight-forward but will require management’s time to correct in the form of more thorough business or account planning. But realistically, that will not happen until next year or in the next business-planning cycle.
As a more direct solution, some astute companies can employ an interim shortcut to setting sales-territory (or operating-unit) goals. First, many management teams should be able to immediately group sales territories into three broad categories:
- Type I—territories or units with higher than average potential to grow;
- Type II—territories or units with average or moderate potential to grow; and
- Type III—territories or units with clearly below-average potential to grow.
Then, if 5% net revenue growth is the whole-company expectation for the coming year, set Type II & III territory or business-units revenue growth goals at 5% (with a rare exception below that for a “Type IV,”) and set Type I territory or business-unit net revenue goals at say 8-10%. Now Type III’s may still grouse about bonus fairness, but that is the least of your problems. And, you can always adjust pay for keepers, if needed. This should buy you a year or so to make future goals more reflective of true potential—i.e.: precise & fair. [Stay tuned to these pages in future months was we talk more about goal setting.]
Are you satisfied with your performance goals? If not, recognize that some of factors that create goal dissatisfaction have little to do with the actual goal itself or its accuracy. Notice how much employee perception plays a role.
Take the lessons of savvy companies that have both overcome and adapted by continuously improving the quality of their performance goals while also managing employee perceptions of fairness.
But enough wing-flapping about “bad” goals. It is January, goals & expectations are set and every employee should be driving toward hitting their numbers—no more excuses or discussions regarding how high the pole is set.