At the risk of having everyone stop reading at the first sentence, we’ll start today’s blog with some history of business thought leaders. Back in the 1950’s, Peter Drucker established himself as THE business management guru by putting out the crazy suggestion that companies should set goals and work towards them. He dressed it up a bit by calling it MBO, or Management By Objectives, but this very basic concept has been the major driver behind business management theory for the last 60 years. In the 1980’s, Ken Blanchard suggested that there should be some best practices around setting those objectives for employees, and popularized the concept of SMART goals. His Ken Blanchard Companies, 30 years later, are still cranking out material based around the SMART idea (along with his excellent work on Situational Leadership). The point of all this is that there is a good reason that these theories are still in practice today – they are pretty simple to understand, and they work.
Going back to the last blog I posted, you have decided to give your employees a bonus, and have decided to make it a performance-based bonus system. Time to set goals – let’s make them SMART goals. For purposes of this example, we’ll discuss Jim The Project Manager. He’s only been in this role for a year or two so he is fairly green, and works for a construction company. Time for the first letter.
S – Specific. Jim’s goals should be specific. Since he’s a new PM, you may decide he needs a little more training/education in the field of project management. You set a goal based on this criterion. “Take a course in Project Management.” OK…. That might be a bit too broad. Jim is a construction PM, so a course on IT project management would be totally useless for your company and his role in it. But you didn’t specify, and Jim just signs up for a random on-line seminar that he can have run on his computer in the background while he surfs the web on his phone. 3 hours of wasted time later, bam, he’s met one of his goals for the year! The goal needed to be Specific – rework it to be “Take the Essentials of Project Management on-line course through the Project Management Institute (PMI).” That way Jim knows what he should be doing, and both the company and employee will get something out of it.
M – Measurable. There needs to be a yardstick out there, and the more quantifiable the goal can be, the better. You know that Jim needs to do a good job on his projects. But “Do a good job completing your projects” isn’t exactly a tight goal. Make it quantifiable, with a clear target. If the Johnson Project is his biggest task this year, try “Complete the Johnson Project with less than 5% margin erosion” as the target.
A – Attainable. This is a big one. If you set goals that your employees can’t possibly achieve, they serve no purpose. Let’s look at Jim’s project. The project timeline shows that it will take 6 months to complete. Sure, it would be great if he wrapped it up earlier and you could get him on other projects. But setting the goal as “Complete the Johnson Project in 3 months” might be completely impossible, not to mention demotivating. This is one of the reasons I strongly recommend managers and employees set goals together as opposed to just passing them down from on high. If Jim and the manager are working together to set his goals, Jim could explain a few details of the project to help the manager better understand the time constraints. This way, the manager can set a goal that is challenging, would help the company, and is Attainable.
R – Relevant. The goal should be one that actually matters to the company and the employee. Even though Jim might be really interested in learning all about photography, it probably would be of zero use to the company or his professional development. Along those lines, relevant can also play into how goals are weighted. For Jim, the goal of protecting against margin erosion should probably be set at a higher percentage than a secondary goal of “attend a project management seminar that will earn you continuing education credits.”
T – Timely. Goals should have a time element set to them in most cases. If you want Jim to get a particular goal done by the end of the first quarter, say so. If you don’t care, then that is fine, don’t set a time constraint – but don’t be surprised when it hasn’t been done until the end of the fourth quarter.
Beyond setting SMART goals, it is important to not get too caught up in trying to set a huge number of goals for your employee as part of their bonus plan. Five seems to be a universally accepted number, but if that is too many (or too few), don’t get hung up on it – adjust accordingly. And remember, your goals send your employee a message. If for your sales manager, you only set one goal, “Sell $10 million widgets,” then that is going to be the only thing they consider remotely important, and they will be getting the subconscious message that it is OK to completely blow off anything that doesn’t pertain directly to that sales target. This can make for an unhealthy atmosphere – for instance, why would your sales manager “waste his time” attending an all hands meeting when he should be out selling?
Along the same lines, you can set goals on seemingly unimportant items at low percentage values to make a point as well. Perhaps Jim always running a few weeks late on his expense reports isn’t really going to make or break your company. But it is completely wrecking the schedule of Cheryl from Accounting, and she is starting to look like she is ready to walk down the hall and strangle Jim. You can set the timely expense reports as a very small (say 5%) total on his objectives. It will be easy for him to achieve, he now understands that it is important in some way, and it may prevent Cheryl from committing an act of workplace violence.
Final note – don’t be afraid to revisit goals periodically throughout the year. Priorities change. If the project you had assigned as a goal at the beginning of the year gets scrapped as other opportunities arise, adjust accordingly.
Have any questions about setting up a bonus program for the employees in your workplace? Give Tinker HR a call!