Align individual pay for performance goals with corporate success

by on June 17, 2009 · 0 Comment POSTED IN: HR Info Center

Misalignment between individual and corporate goals in a pay for performance plan can lead to disastrous results

A lack of line of sight in pay for performance, otherwise known as misalignment of corporate and individual goals, can come about in when an employee does not see a direct tie in by their actions to the end result. The example that I would use is what we’ve been talking about metrics and corporate level metrics, things like profitability, cash flow, revenue growth.

Our accounting clerk at our organization has absolutely no line of sight, has no control over the overall cash flow of the organization. They’re simply too far removed in that relatively low level position. They’re too far removed from that top level goal of revenue growth.

The c-suite and pay for performance plans
The best way to create a pay for performance plan where everyone has a “line of sight is by incorporating cascading corporate objectives. What I mean by that is for our CEO and maybe for our leadership team, their individual goals maybe exactly the same thing as those corporate goals. So our CEO may have goals of increasing profitability and revenue growth as we outlined before.

The management team and cascading pay for performance goals
As we start to move down the organization, generically speaking, we may move away from the VP suite and now we’re talking about directors or middle managers. Rather than have 100% corporate goals, now we’re going to start to shift that dynamic. And so, human resources manager for example, they may be tied 80% to those corporate goals but 20% of our goals is going to be tied to HR-specific metrics.

Did we reduce turnover? Did we hit our recruiting goal? What are our performance metrics look like? Did we implement the online performance management system, whatever those individual goals are.

As we continue to move down the organization into the lowest levels of bonus eligibility, that’s going to continue to shift away from corporate goals to the point where we would be 100% individual goal focused.

Again, the idea here as we shift away from corporate goals towards individual goals is to have that “line of sight in pay” for performance so that employees understand and feel like they have control at the end of the year over their bonus.

Otherwise, you’re going to have somebody at the end of the year who gets a windfall bonus because we hit corporate goals even though they didn’t really contribute to that or they may have contributed more than their share but because of other issues, those corporate goals were not met.

Edited remarks from the Rapid Learning Institute webinar: Incentive Pay Plan Blunders That Can Cost You a Fortune by Ed Rataj

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