Aligning Goals, Incentives, and Measures

Having the right people on the team is essential, but it s not enough. To achieve your A-item priorities and secure early wins, you will need to define how each team member can best support those key goals. This process calls for breaking down large goals into their component pieces and working with your team to assign responsibility for each element to a particular team member. Then it calls for making each individual accountable for managing his or her goals. How do you encourage accountability? The short answer is: through effective incentives and clear criteria for measuring performance.

Designing Incentive Systems

A blend of push and pull tools works best to motivate a team and shape behavior (see figure 7-2). Push tools, such as compensation plans, performance measurement systems, annual budgets , and the like, motivate people through authority, loyalty, fear, and expectation of reward for productive work. Pull tools, such as a compelling vision, inspire people by invoking a positive and exciting image of the future.

Figure 7-2: Using Push and Pull Tools to Motivate People

The particular mix of tools you use will depend on your assessment of how people on your team prefer to be motivated. Your high-energy go-getters will probably respond most enthusiastically to pull incentives. With more methodical and risk-averse folks, push tools may prove more effective.

How do you go about combining these two types of incentives? You have several options. A baseline question to ask yourself is how you will want to reward team members for achieving goals. What mix of monetary and nonmonetary rewards will you employ ?

It is equally important to decide whether to base rewards on individual or collective performance. Do you need a high-performing team, or is a high-performing group enough? The distinction is an important one. If your direct reports work essentially independently, and the group s success hinges chiefly on individual achievement, you don t need to promote teamwork and should consider an individual incentive system. If success depends largely on cooperation among your direct reports and integration of their expertise, true teamwork is essential and you should use group goals and incentives to gain alignment.

Usually, you will want to create incentives for both individual excellence (when your direct reports undertake independent tasks) and for team excellence (when they undertake interdependent tasks ). The correct mix of individual and group rewards depends on the relative importance of independent and interdependent activity for the overall success of your unit. (See The Incentive Equation. )

Designing incentive systems is a challenge, but the dangers of incentive misalignment are great. You need your direct reports to act as agents for you, whether they are undertaking individual responsibilities or collective ones. You don t want to give them incentives to pursue individual goals when true teamwork is necessary, or vice versa.

Defining Performance Metrics

Establishing ”and sticking to ”clear and explicit performance metrics is the best way to encourage accountability. That is, select performance measures that will let you know unambiguously whether a team member has achieved his or her goals.

The Incentive Equation

The incentive equation defines the mix of incentives that you will use to motivate desired performance. Here are the basic formulas:

A. Total reward = non-monetary reward + monetary reward

The relative sizes of nonmonetary and monetary reward depend on (1) the availability of nonmonetary rewards such as advancement and recognition, and (2) their perceived importance to the people involved.

B. Monetary Reward = fixed compensation + performance-based compensation

The relative sizes of fixed and performance-based compensation depend on (1) the extent of observability and measurability of peoples contributions, and (2) the time lag between performance and results. The lower the observability or measurability of contributions and longer the time lag, the more you should rely on fixed compensation.

C. Performance-based compensation = individual performance-based compensation + group performance-based compensation

The relative sizes of individual and group-based performance compensation depend on the extent of interdependence of contributions. If superior performance comes from the sum of independent efforts, then individual performance should be rewarded (for example, in a sales group). If group cooperation and integration is critical, then group-based incentives should get more weight (for example, in a new-product development team). Note that there may be several levels of group-based incentives ”team, unit, and company as a whole.

 

Avoid ambiguously defined goals, such as Improve sales or Decrease product development time. Instead, define goals in terms that can be quantified . For instance, Increase sales of product X by 15 to 30 percent over the fourth quarter of this year, or Decrease development time on product line Y from 12 months to six months within the next two years .