By Shari Dunn, Compensation Consulting, Arthur J. Gallagher & Co.
There are three primary reasons to measure employees’ goal achievement:
- To facilitate achievement of the organization’s business objectives
- To link compensation to job performance for individuals and/or teams
- To provide feedback about developmental needs (skills and/or behaviors) to supervisors and employees
All three of these purposes are critical to the success of any organization. Effective measurement of goal achievement is a systematic process that includes the participation of managers and employees, as well as clear communication and thorough documentation. This article outlines a suggested process.
- Some conditions must exist if the measurement of goal achievement is to be effective. These are:
- Recognition of the process as a management tool, not solely a human resources program
- Definition of the overall organization’s financial and operating goals and communication of these to the entire organization
- Designation of reporting relationships and accountabilities for all employees and communication of these to all employees
- Identification and communication of job functions and responsibilities, including team roles
Sometimes, an organization’s management team assumes that the definitions of these structural components are self-evident. However, in many cases, and in the absence of communication, employees have either made their own assumptions or simply don’t know where they fit into the overall picture. For example, when employees are asked to draw a simple organizational chart indicating to whom they report and who reports to them, their charts are often quite different from those drawn by their immediate supervisors.
This confusion may be the result of attempts to implement flat organizations, teams and other, less structured ways of working intended to reinforce collaboration. Setting goals and measuring goal achievement in an unstructured organization is a much greater challenge than it is in a situation in which work is well defined.
Overview of the Process
Goals provide us with direction. To the extent that we can set our direction within the context of our organization’s goals, we will be effective in contributing to the overall success of the organization.
Management effectiveness cannot be achieved without clear communication. Goal definition contributes a great deal to such communication. When goals are defined collaboratively (between supervisors and employees) both parties take ownership of the goals and work together to achieve them.
Setting goals is difficult. However, if the assumed conditions noted above exist, setting goals becomes much easier. Still, the process requires one to think, and to think in such a way as to align oneself with the organization. It is human nature to resist looking at the “big picture,” especially when it becomes a key element in determining their career success, compensation and even their ability to keep their job.
Furthermore, no matter how well defined the organization’s process may be, goal setting and measurement are never perfect. It is, by its very nature, a process of trial and error. Over time, the process can become more and more effective, but only if the initial resistance and intolerance of imperfection can be overcome. In short, the process requires commitment and continuous attention on the part of senior management.
As daunting as the process may seem at the outset, consider the alternatives. What other means of managing performance outcomes and/or achieving organizational objectives might be used?
Following are the steps needed to establish and maintain an effective goal-based management tool:
1. Identify which employees will set goals. Some organizations limit participation to management employees as a first step. Others recognize that all employees contribute and offer valuable insights into ways to define and measure their work. Often, employees holding non-exempt jobs create excellent goals and highly effective means of measuring them because they are close to the day-to-day activity.
2. Choose goals carefully. As a first step, choosing goals is best done by the employees whose performance will be measured based on their achievement. This does require that they have knowledge of the organization’s goals as well as their own roles in achieving them. Supervisors, of course, must usually work with employees to refine and develop the goals.
Well chosen goals will meet specific criteria, including being:
- Measurable, either quantitatively or qualitatively
- Identified as individual or collaborative
- Reflective of primary job functions, not “back-burner” projects
- Balanced, short-term vs. long-term
Goals for senior management jobs need to be strategic in nature. Department heads need to focus on high-level tactical goals. Non-management employees need to specify tactical goals.
In most cases, it is recommended that the number of goals for any one individual be between three and five. More than five tends to be too complex to manage, and less than three rarely covers all key aspects of the job.
3. Clarify conditions and interdependencies.
Conditions are those things that have to happen, beyond the control of the employees, in order for him/her to achieve a goal. They may be broad economic circumstances such as continued market growth, or they may be internal dependencies such as the receipt of a report in time to meet a process goal.
When conditions are internal interdependencies, there is the potential to develop collaborative goals, which simply means that two or more employees share the same goal, one that is broader in scope than it would be if only one individual had it.
4. Develop metrics. There are only three measures of goal achievement and each goal needs to be set along with specific measures in these terms:
In addition, measures need to be set for various levels of achievement. For example, for each goal one might specify (1) a minimally acceptable level (threshold) for which there would be any pay consequence, (2) a target or stretch level and (3) an exceptional, significantly beyond expectation level.
Depending on the timing of the process, measures of goal achievement may be the end results themselves or milestones marking progress on longer-term project objectives.
Goals must to be weighted to reflect relative importance. This is most easily done by assigning a percentage for each goal, with the sum of all goals equaling 100%.
Simple, one or two page forms should be designed to capture brief goal statements, conditions, weights and metrics. These serve both as documentation of the goals themselves and as records of actual achievement. Added pages can provide supporting documentation, if needed.
5. Establish the process. This step involves determining the timing, roles, training, communication and review of the entire management tool.
The timing of the process is dependent on a number of organization-specific factors, including the ability and/or willingness to measure performance frequently (i.e., quarterly or monthly), or less frequently (i.e., annually). The types of jobs and individuals participating in the process will affect the roles they are expected to play. For example, the organizational structure, or lack thereof, will affect the degree to which collaborative goals are needed.
Training and communication are both essential to the success of any goal-based performance plan. All participants, including senior management, need to attend interactive training sessions during which the process is explained and every participant is trained to set and measure goals for his/her own position. One enormous advantage of the training sessions is that they demand the active discussion of specific goals by the participating employees, who then benefit from the comments and suggestions of their peers. For example, employees who are having difficulty identifying their own goals may hear great suggestions from their internal customers! Beyond the training sessions, the expectation is then that employees will work with each other, both within and between departments to establish goals and set measures. The communication thus facilitated is valuable to the organization far beyond the benefits accomplished merely by measuring goal achievement.
6. Allow for goal changes. Because today’s business environment is volatile in many ways, it is imperative to allow for changes in goals during a review period.
Of course, such changes must be subject to approval by senior management and must be due to factors that are beyond the control of the employees to whom they apply.
Changes may be made to the measures employed, as well as to the goals themselves. For example, an individual for whom one goal is the timely placement of advertising for a new product would certainly need to eliminate that goal if the company’s senior management decides not to pursue the production of the new product. That employee could then substitute a different goal or eliminate it altogether, re-weighting his/her remaining goals accordingly.
7. Link to pay. Once the process of goal setting and measurement of goal achievement has been implemented, the performance results for each participating employee will be self-evident. Each employee’s “rating” will be the percentage of goal achievement they produced. There will be no surprises and little ambiguity. The results produced, depending of the measures chosen, may be somewhat subject to interpretation, but the latitude for subjective input will be far less than that found in most traditional performance rating systems.
Once there is an overall goal achievement percentage for each employee, it is a relatively simple matter to link this measure to pay. A percentage of goal achievement as a performance measure avoids the unfortunate assignment of terms such as “outstanding”, “meets expectations” and other designations that are semantically difficult.
The ratings can be arrayed from highest to lowest and “graded on a curve” as a relative means of allocating a bonus pool, for example. Or, the percentages can be linked to an absolute rating, such as “95% to 105% equals a rating of 4.” These ratings can apply to base salaries, variable pay or other forms of compensation such as allocation of stock options.
8. Manage the process. Once in place, the goal setting and measurement process must be continuously reinforced by all concerned. In one of our client companies, the President demonstrates his commitment to the plan by frequently stopping by the desks of employees and informally discussing how he’s doing on his own goals with them. He uses the same form as the other participants and often asks to see the employee’s goal form so they can discuss what they mutually need to do to ensure that their respective goals are met and/or exceeded.
In other organizations, individuals who share collaborative goals have frequent, impromptu discussions with their peers about their progress, learning from each other as they discuss ways to improve efficiency and productivity. The context of the goal statements provides both clarity of purpose and motivational focus for all involved.
There is no question that the adoption and management of a goal setting and goal achievement measurement process is a major undertaking. We frequently hear objections related to the time-consuming nature of the process. But, we wonder what can possibly be more important in any organization than defining goals and directing efforts towards achieving them.
Setting goals is in many ways no different, and may even be more important, than creating other forms of infrastructure such as computer systems. Why are organizations willing to commit enormous financial and time resources to developing plant, equipment, and technology without parallel commitment to the human resources infrastructure?
The definition of goals in itself, even without measurement, is a powerful means of ensuring their achievement. Measurement provides opportunities for process improvement and efficiency beyond what would otherwise occur. A goal-based process, while certainly not without its problems, provides tremendous advantages for organizations to attract, develop, keep and motivate the increasingly elusive, talented workforce they need today to build support for growth and success tomorrow.
About the Author
Shari Dunn is a Managing Director of the Compensation Consulting Practice for the Human Resources & Compensation Consulting team of Arthur J. Gallagher & Co. Her practice helps organizations strengthen the performance of their organization with sustainable solutions for compensation, program design, employee engagement, executive compensation, HR audits, surveys, training and development, recruiting solutions and more.
Managing Director, National Practice Leader
Human Resources & Compensation Consulting
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