Employee Goal Setting That Works

It's important to put goals, objectives and targets out in front of your employees -- particularly your management team. It's critically important, if you have any type of variable, incentive or bonus compensation planned or in place.

Many CEOs and business owners pay "bonuses", usually at the end of the year, and most commonly on a "discretionary" basis. Some people think this works. Others say that if the "bonus" basis appears vague or arbitrary (does "discretionary" sound that way?) that it accomplishes little in terms of driving employee behavior. In fact, after 2 or 3 years of these apparently arbitrary bonuses, people tend to just expect something within the range they've received before as an assumed portion of their base pay.

Do you really want your incentive compensation to actually drive behavior? See: http://chiefexecutiveboards.blogspot.com/2008/01/paying-for-performance.html

Let's talk about step 1: "Clearly define the goals and performance objectives of the company and of the group you'd like to incentivize".

Here's an approach that will work with an individual manager or a group of managers with similar duties (a group of project managers, for example):

1. Decide upon the 4 or 5 (no more) "big picture" performance areas of the job -- things like "Manage the People", "Continuous Improvement", "Grow Revenue", etc. If you have a strategic plan in place, these should relate to the 4 or 5 primary Objectives of the plan. If you don't, these big picture performance areas will work as a substitute.
   
2. For each of the above areas, decide on 1 or 2 measurable goals -- think "What would GOOD look like?", "what would GREAT look like?"
   Now you have the basis for a conversation. In fact, this can be MOST effectively done interactively with the employee -- engage them in the definition of the major performance areas and then in determining the goals. That gets you buy-in and commitment.
   
3. Make sure the goals are "SMART" --
   - Specific - Clearly stated, understood by both Employee and Manager
   - Measurable - Include specific metrics to be accomplished
   - Achievable - Within reach, considering constraints of time, resources, market, etc.
   - Relevant - Meaningful to the Performance Area – would improve overall results if achieved
   - Time-based - Specific timeframe for achievement is identified.
   
4. Write it all down, and sign it. For a form you can adapt to your company and your needs, see: http://www.deltaresourcegroup.com/resources/GoalSetting&performance%20review.doc
   
5. Put it in a followup folder or mark your calendar for a quarterly review. This doesn't take long -- email the goal summary document to the manager, and let him tell YOU what great progress he's making on the goals. Or come up with the excuses for why he's not.

This will work. You'll be amazed at the result. Even if you don't fully design a bonus or incentive program, at least you'll have a rock-solid means of deciding upon and explaining your "discretionary" bonus awards.

In a future article we'll explore how to convert these goals to bonus dollars in a way that pays your employee for exactly what you wanted him to do, and makes you money in the process.