Posted by Chuck Csizmar | Posted in Articles, Universal Compensation | Posted on 10-08-2016
Any seasoned compensation practitioner will tell you that having business objectives for an employee’s short term incentive plan (the annual STI) is a critically important design element. Lacking that you will face the prospect of misguided busy work being claimed as having provided a valuable contribution.
These same professionals will likely also expound on the value of developing SMART objectives.
- Specific: Avoid the vague and generic
- Measurable: You have to be able to measure the performance
- Attainable: Objectives should be reasonably attainable with a concerted effort
- Realistic: Meaningful goals that support the needs of the enterprise
- Timely: Avoid a never-ending effort with a time line that fits the performance period
And then we have to consider the number of objectives. Here the usual advice is to concentrate one’s effort on less, not more. Having 10 or more objectives reads more like an activity roster than a focused series of targeted goals integrated with management and business plans. The rule of thumb (actually more of a guideline) is to identify no more than eight, and no fewer than four objectives.
Somewhere in that discussion you would also find recommendations concerning the size of the targeted reward – the potential, the opportunity. No one changes their behavior and focuses their efforts for an entire year with the promise of only a pittance.
Ok. Now that you have (hopefully) the right objectives to chase, and you’re motivated to do so, the question becomes, where best should you spend your time and effort?
What To Focus On
The natural tendency for most employees is to focus their efforts on what they’re interested in (what they like to do), what is the easiest to accomplish, and those objectives that would give them the biggest return for their efforts. Identifying the easy stuff is, well easy, but what would provide the biggest bang requires more organizational planning and design. Because the organization should have designed a win-win scenario into their plans; if the organization wins, the employee wins. But the organization has to win.
To get the employee to chase specific goals meaningful to the organization the carrot (reward) dangled in front of them needs to be large enough to gain and keep their attention. So the organization needs to lead the employee to focus their efforts on what is most important to the organization.
The natural tendency is to first attack the challenge that provides the highest reward and least resistance. They may even decide to ignore other objectives – no matter the value to the company – if the reward for the easy objectives makes up the difference.
So employees can be encouraged to change behavior and focus attention on those objectives with the greater reward opportunities, the biggest bang. You do that by proportionately weighing the more important objectives much greater than the “nice to have” objectives.
Consider this: When you provide an employee with multiple objectives, anything with a weighting factor less than 10% of total reward opportunity becomes a wasted effort. They’ll either ignore it (no results), or will feel the goal can be achieved with little effort (would likely have been achieved anyway). Reward monies in this case will not motivate, will not impact the employee’s behavior.
I have witnessed Sales employees ignore small payout objectives in favor of focusing on the bigger ticket reward goals. So make sure you put your money and weighting behind these goals.
Without weightings each objective, whether large or small, critical or incidental, will be valued and paid out at the same rate. Which is NOT how your organization actually values these objectives. But if you design the incentive plan that way, that’s the behavior and that’s the performance that you’ll get.