A medical start-up I worked with in the past faced a considerable schedule delay. I suggested the CEO display the company's goals and schedules in a prominent location, breakdown company goals to personal ones assigned to each managers, and thus delegate responsibility to them.
He showed me a PowerPoint containing the company's goals, and said it was often presented in management meetings.
I again suggested he turn the larger goals into smaller, personal ones for managers. The CEO insisted managers should take personal responsibility of achieving the company's goals, and if he needs to do the work for them, maybe they aren’t suitable for their jobs.
All members of the management team had graduate degrees in physics, chemistry, or biology, and the CEO expected them to know how to take personal responsibility for company goals without him doing that for them.
But that didn’t happen.
I met a similar situation at a small and new technological startup. There, too, the CEO found himself chasing all company goals. Even his partners didn't translate the startup's goals to personal goals for themselves.
Measurable Personal Goals for Every Manager
Do you have set personal goals in your job?
If not – your situation isn’t different from that of many managers. Most managers I meet work without personal goals, or they have goals set, but not measured. The CEO doesn’t monitor progress throughout the year, nor requires a work plan detailing how goals will be achieved. I'm talking here about managers from VPs all the way down to team leads on the production floor. And about medical or technological startups all the way to companies at the heart of traditional industry.
Can Company Goals Be Achieved without Personal Goals?
CEOs are always measured and monitored. By the board, the owners, or the bank when they own a small business. Even without defined goals, the CEO must show the company is successful, and is the one responsible of making sure the company is profitable, growing, and expanding.
A few hours ago I spoke to a small-business owner. He told me he sets himself a goal every year, and meets it. His business is growing 20% percent every year and is profitable. Other than the owner-CEO, the company employs four other people, and the CEO is also responsible for about half the sales. This is a truly small company, and the CEO can bear the lion's share of achieving goals.
Can larger companies also grow and generate profits without setting goals for VPs, who are then monitored once a month?
When CEOs don't ensure VPs have personal goals intended to advance the company's goals, they can find themselves managing their VPs tasks. Monitoring them on the task level instead of the goal level.
Instead of delegating responsibility for meeting goals, CEOs in such situations assign tasks and monitor VPs as if they were delivery-people.
Personal goals for managers ensure they are personally committed to the company's success.
However, on the other hand…
Does Meeting Personal Goals Really Advances the Company's Goals?
Fred Kofman has a good example showing how personal goals can hinder the company's overall success.
A soccer coach wants to raise the team's chances of winning. He tells his defense that they'll get a monetary bonus, and every goal scored against them will lower that bonus. Is it better for them to win 5:4 or lose 0:1?
Since their bonus decreases with every goal against, it's better for them to lose 0:1, since that means the opposing team only scored one goal against them. A 5:4 win means 4 goals were scored against them, and so their bonus will be lower.
And if the coach promises the offense a bonus which grows with every goal they score? Is it better for them to lose 4:5 or win 1:0?
A 4:5 loss means they scored 4 goals, while a 1:0 win means they only scored 1 goal. So their bonus will be bigger with the loss.
You might think, like me, that this is a great example, but dismiss it as imaginary. In that case, here is a completely real example I presented in an article from 2012.
A large and successful company used to give monetary monthly rewards to employees and managers for meeting goals. One of the department-heads had a salary which was influenced by meeting the goal for the percentage of time the production line worked out of all possible hours.
In order to show good results and get the monthly bonus, this department-head didn’t bring to production problematic lines or products which had already been prepared by the department situated earlier than his in the chain of production. As a result, considerable stock piled up on the production floor and fewer products were completed. The PP&C department identified a problem with this lack of completed products going out to market. They failed to see the root of the problem was that partially manufactured products never reached the final stage, and so their solution was to increase production orders by 20%. The floor grew even more disorganized, but the number of completed products didn't rise.
Every few months, or when there were enough orders, the above department head would clear all the stock on the production floor, and produce a flood of completed products. But at that point they were no longer necessary, and would be sold at a 60% discount.
When my team and I started working with this company and identified the process described here, the cost of the damage done was estimated at 600,000 NIS. A cost that repeated every few months. The company was large and profitable, but even such companies don't want to throw away several million NIS.
So, Is It Actually Better to Avoid Personal Goals, and Stick to Company Goals?
According to Fred Kofman, if all employees are rewarded solely based on the company's overall success, lazy employees that don’t contribute would benefit just as much as hardworking ones. This way the latter's motivation will be hurt, because the former will have an equal share of their reward.
So Which is Better?
After ten years at MIT, researching this question, Fred Kofman came to the conclusion that there is no answer, and left academia.
Work with Personal Goals, but without Monetary Rewards
I can personally attests that Fred Kofman is an amazing individual, very sharp and clear-eyed. Combining his conclusion with my experience, I think the problem isn't personal goal themselves, but the monetary rewards. Never give monetary rewards for meeting goals, except to sales representatives.
Fred's experience and the theoretical exercise about the soccer team, the example I presented above and my experience, clearly show that monetary rewards distort people's work.
Above all, Prof. Dan Ariely, in his book Predictably Irrational: The Hidden Forces That Shape Our Decisions, presents his research at an Intel manufacturing site.
Intel gave monetary bonuses for increased production, and Arieli tested alternatives for rewarding employees for meeting production quotas.
Employees were divided into four groups:
The first group was promised a monetary bonus if they met or exceeded the quota.
The second was promised a voucher for a family-sized pizza.
The third, an appreciative letter from their manager.
The fourth group was a control group, and was promised nothing.
Over four working days, the third group had the highest output, while the first group had the lowest. I discussed this experiment further, as well as other ways to reward employees, in a previous article (see here).
Personal and Company Goals – Step by Step
- Define the company's goals.
- The CEO and each member of the management team meet to set three or four personal goals for that manager.
- All managers break those goals down for their employees in great detail.
- All goals follow the SMART method: specific, measurable, achievable, relevant, and timely.
- Managers' goals will be monitored monthly during a management meeting led by the CEO. Each manager will present a work-plan to address each goal that isn't progressing as planned.
- More frequently (weekly or sometimes daily) managers will meet with their teams to monitor their goals.
- The CEO is responsible for fostering a company-wide determination to meet goals.
- Different goals might seem to clash, but that is actually a necessary balance. For example, quality-control goals could prevent the release of subpar products, and thus, seemingly, hinder production goals. Or, a finance goal to avoid lost debts could prevent sales to high-risk clients.
- The CEO is responsible for fostering an appreciative culture towards all employees around goals and achievements, and thus strengthen their motivation.
- The CEO is responsible of making sure managers are meeting their goals.
- The CEO needs to emphasize the importance of cooperation and support between managers, even if this hurts (to a degree) personal goals.
Note: as long as no monetary rewards are involved, managers will be more willing to cooperate even when it slows their own progress.
Why It's Essential You Tie Compensation to Sales
Sales reps are alone out in the field, and theirs is a complex and difficult role. My experience shows that sales reps who aren’t rewarded according to actual sales have much lower success rates than those who are.
Note: only reward sales reps when payments for their sales happen, and not for invoices. First, so that the rep takes responsibility for ensuring client payment, and second so that you don't give bonuses for sales which are later cancelled.
Won't Tying Bonuses to Sales Create Problems?
It certainly might. There is no limit to the negative creativity and ideas I've come across. Sales reps, like all of us, are honest people who care about the company's success, and it would be wrong to paint them as otherwise. But giving monetary bonuses for performance is like putting stumbling blocks before the blind. Since it's nonetheless necessary – you must ensure meticulous management. As stated above, one way to do that is to only give bonuses for sales after the client pays.
Summary and Recommendations
Fred Kofman presents a dilemma:
If you reward all employees when the company meets its general goals – lazy employees get a reward equal to that received by hard-working employees, and the latter lose motivation.
On the other hand, giving rewards for meeting personal goals could spur employees (and managers) to achieve personal goals even if those hinder the company's general goals.
This dilemma is real and problematic. But it assumes that the rewards are monetary (as they indeed are in many companies).
Monetary rewards warp everybody's actions. Such a monetary reward could lead managers to prioritize personal goals over company ones, and damage their willingness to cooperate.
That is why you shouldn’t give monetary rewards, and the CEO needs to create a culture of meeting goals and cooperation.
The one exception is bonuses to sales representatives, for whom compensation needs to be tied to sales (for which payment has been received). Here the necessity of monetary rewards outweighs concerns, but in order to ensure greed doesn’t lead to misdeeds, meticulous management is required.
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