Setting targets and objectives is no easy feat.  But when meaningful targets are set, they can work as a strong motivational tool, says Mark Goodridge

Director: Your performance this year comes out at just under 91%.

Manager: But that doesn’t take into account the poor trading at the beginning of the year. Taking that out, I calculate my performance at 111% and I’m looking forward to my super bonus that kicks in above 110%.

Director: We agreed the scorecard of measures and targets at the beginning of the year, how can you say that your performance is 111%?

Manager: I gave my all last year. You know that.  I did everything you asked of me and I expect a proper reward. And anyway, I can’t achieve my targets if Marketing don’t deliver theirs. We’ve had the discussion about the failings of Marketing. They should foot the bill for the company’s overall loss of performance. It’s not my fault…

…and so it goes. This is a typical conversation we hear at ER Consultants. Setting objectives sometimes seems like setting up a running conflict. Yet, somehow this basic part of good management – that everyone needs to agree targets, be measured against those targets and rewarded on achievement – is not as simple as it sounds.

Targets need to be measurable and set. Objectives need to be SMART:

• Specific;
• Measurable;
• Achievable;
• Realistic;
• Timed.

If people have objectives that they are committed to, have the capability to deliver them and sufficient freedom to act, they will endeavour to make it happen. So if we are going to get the best from people they need objectives and targets. That’s the dominant corporate view on how to motivate staff. So why do we get into battles over such an obvious and simple activity?

There are a number of reasons. None of them suggest we should not set targets and measure staff against them, but they do suggest how we can use targets for better effect and reduce conflict.

1. Accountability
Senior managers often have a strong desire to pin their staff to the wall and make them totally accountable for the outcomes of their job. Clarity of output is important and if targets are achieved then there is a reward, usually a bonus of some sort.  If objectives are not achieved then the individual should be penalised – i.e. the ‘carrot and stick’ motivational model. Managers have heard all the excuses, they need delivery and individuals must be made accountable. The complication is that in our complex organisations there are few jobs left (outside the Chief Executive or Unit Managing Director) who can be seen as having singular accountability. The rest of us have, to a greater or lesser degree, shared accountabilities; we are entangled with others, so our accountability is blurred and confused. I need your help to deliver my accountability. In other words, my performance depends on whether you deliver, but why should I get penalised if you don’t or can’t?  Our desire for singular accountability has overreached our ability to separate out accountabilities in the simplistic way in which we often do. Either we need to change our view of accountability or we need to ease off on the pressure on people for measures that are considerably influenced by others.

2. Motivation
The idea that rewarding the achievement of a target will deliver motivation needs further inspection. If we believe that this is one of the ways of motivating people then we need to accept that we are giving people a choice. The choice we are giving people is either to work hard to improve performance and thereby achieve the reward or work hard to lower the target and thereby achieve the reward (see negative motivation loop in diagram above). If we’re going to get really instrumental about it then if it is easier to lower or fiddle the target than change my performance, then all else being equal, I may be tempted to do just that.

3. The goal, stretch goal and incredible goal
A successful Chief Executive who I worked for, for many years, never accepted a target given to him by one of his divisional directors. He would screw up his face, look disappointed and always demand more. At first encounter he was uncompromising, unreasonable, but his stretch target was always within the boundaries of possibility. His energy was a positive force. It demanded that the divisional Directors raised their game and didn’t become bogged down in all the potential risks. The effect was inspirational and challenging. It was a great example of leadership – helping others to get to places that they were not confident of achieving.  The fascinating result was that most divisions often met and exceeded their targets. He had the wisdom of knowing how hard to push without his Directors feeling bullied into accepting the unachievable. His targets became personal imperatives and personal disappointments if not achieved.

Another Chief Executive I know has a different, but equally effective approach. He asks his Directors to forecast target performance, challenges the numbers and the logic and then at the end if they still both disagree accepts their figure for his/her personal target. However, he puts into the business budget his own figure. If the Director achieves his figure then fine, the accountability for the difference lies with the Chief Executive. This subtle approach leaves the individual wondering whether he or she has got the forecast right. No one likes being out of line with his or her boss; it is very rare for there to be a figure which both parties don’t firmly agree on.  Calibrating targets is not easy:

• The target may be soft and provide little sense of motivation;
• The stretch target must be credible and can engender additional effort to make it happen;
• The incredible target makes no sense and may have the effect of demotivating the individual:
  “Why bother, I can’t achieve it anyway.”

Diagram 1: Positive/Negative Motivation Loop

4. Clash of the top-down strategy with the bottom-up budget
Most companies spend three or more months preparing the budget for the following year. It is then quite difficult if the parent company does not accept the resultant forecast and imposes a higher profit number particularly if this happens just before the new fiscal year. What is the company supposed to do, rerun the entire budget? A frequent workaround is that the company sticks to its original figures with respect to its internal targets, but then presents its results against the head office’s imposed target. So where is the motivational effect here? It is hard to see any beneficial effect for the business. Caesar’s due is being rendered, but without the commitment or process to make it happen.

5. Linking targets to pay
Attaching pay to target achievement increases the focus and the potential motivation. Again, so often we can’t agree on the calibration. You think target bonus should be achieved for a budget performance, I think it should be paid for delivering exceptional performance. “What is your base pay for,” I cry? “Surely, base pay is for achieving the normal budget expectation for the job. Is the bonus for achieving over and above the expected?” We need to be explicit about targets, but the stronger the financial incentive, the more we may have to face game playing in the setting of those targets.

6. The measure becomes the objective
For anyone who is skeptical about whether targets work or not need look no further than the impact of the UK government’s targets in health and education sectors. Let’s take the NHS. The target is that everyone should be able to get an appointment with his or her doctor within 14 days. My doctor met this target immediately. He changed the appointments system so that no booking could be made more than 14 days ahead. Ergo, all appointments are made within 14 days. This demonstrates the power of targets and the problem of unforeseen consequences and downright manipulation! Means and ends become distorted. The target is a means of achieving something; it is rarely the end in itself. If we over use targets, particularly imposed targets, then we run the risk of distortion in the customer delivery or business performance delivery.

So how can we better use target setting to achieve? Don’t believe that you can manage on targets alone; they are a helpful tool in the context of an effective leadership relationship. In ER Consultants’ experience, where performance management is regular, meaningful targets do work as a strong motivational tool whether linked to money or not.

As ever, context is so important. If the Director and Manager, at the start of this piece, had a regular dialogue, there would have been no surprise in the year-end result. If others were not delivering their part of performance delivery then action could have been taken. Whinging cuts no ice.

10 Tips For Effective Target Setting
Limit the number of targets – above 10 and people lose focus.

1. Agree the measurement when you agree the target.
2. Be explicit if the achievement of targets is a joint accountability.
3. Try and give measures and targets so that the individual has overall influence over their achievement.
4. Target setting is an iterative process. It does involve ‘stretch’ and building ownership and commitment.
5. Understand the potential unintended consequences.
6. Keep in focus the overall objective. The target is there to indicate achievement – targets are rarely an end in themselves.
7. Regularly review progress against targets. If they are no longer relevant, change them, and don’t assume at the end of the year that your view will be your employees’ view.
8. Develop the concept of Total Reward with its emphasis on the nature of the work itself, the freedoms to act within it, in addition to getting the hygiene factors right.
9. Link pay to measurable business outcomes rather than tasks and processes. Be explicit about the calibration.