Variable pay schemes are increasingly attracting the employers’ interest and attention in that genuinely regarded as an appealing and fascinating approach to reward management. The use of this type of pay arrangements, nonetheless, is not widespread in practice because more often than not what deemed to properly work in theory has not invariably proved to be effective in practice. In many instances, the introduction of these schemes has in fact ended in a complete failure.
Irrespective of the approach an organization has recourse to in order to assess and review performance (either performance appraisal, or performance management or performance appraisal as an effective component of performance management), setting and agreeing personal objectives with individuals definitely represents one of the most daunting tasks managers have to deal with as part of performance review. Managers at all levels should thus take extra care with this activity, albeit in many cases it is virtually perceived by the management as a formality or even as a nuisance. Putting aside the burden associated with the execution of this undertaking in fact goal-setting definitely represents a very sensitive issue for employees. Regardless of the link which may or may be not formally established between pay and performance, individuals usually associate a remarkable importance with the attainment of their objectives and the feedback received from their managers.
Dessler (2005) and Williams (2002) suggest that goal-setting is indeed part of an integrated performance management process whose components are identified in objective-setting, performance appraisal and development. This integrated approach also aims at aligning individual goals with organizational objectives, linking together other relevant aspects of HRM such as reward – although this type of linkage is considered questionable by many – and development, and at achieving increased levels of overall performance by helping to enhance individual and organizational effectiveness (Lucas et al, 2006).
In order for individuals to effectually contribute to the enhancement of organisational performance, these need to have crystal clear ideas of the mean and scope of their contribution and of the results they are actually expected to produce. Their efforts and contribution should thus be goal-directed and awareness-based. To be successful employees clearly also need to have the knowledge and skills necessary to yield the expected results.
This is basically the reason why performance management has to be intended and managed as a continue process by means of which managers and staff have the possibility and the opportunity on the one hand to constantly discuss the objectives agreed and the most effective way to achieve these, and on the other hand to make plans for the individual professional development. Goal-setting forms by extension a fundamental part of performance management, the starting point of the process and the pillar on which it builds up (Longo 2011).
Targets can be agreed in the form of Key Results Areas or Accountabilities (KRA) and have to be supported by performance standards and performance measures (Lukas et al, 2006).
Both goal-setting and expectancy theories suggest setting a small number of goals for each individual. Notwithstanding, this is not necessarily a method ensuring a successful outcome of its own, both because individuals could find it difficult to understand how the achievement of their personal objectives fits in with the organizational goals and by reason of the likely diversity of the agreed goals, which may ultimately require a series of qualitative different efforts and entail employees to have knowledge of different fields.
Despite the definition of individuals goals and objectives does not really represent an easy task, it does not indeed represent the most difficult feat managers are called to perform when dealing with performance review either. Goals in fact not only need to be defined and agreed, but what trickier they also need to be assessed and measured, which in most cases may prove to be a remarkable feat to perform.
As a general rule, goals can be considered as “hard” or “soft” according to the circumstance that these are associated with the “hard” or “soft” features typical of an individual and the activity this perform. Are habitually deemed “hard” those goals, which being based on individual technical knowledge and capability, are linked to actions which can more promptly and relatively more easily be assessed by means of objective measurement methods. By contrast, are defined “soft” those objectives which being exclusively linked to more intangible features, like individual traits and behaviour, cannot be immediately objectively measured. These remain hence subject to preconception and personal appreciation and as such potentially biased. In practice, the vast majority of managers, when setting individual objectives, have recourse to a blended approach which takes heed of both the individual “soft” and “hard” features (Lucas et al, 2006).
The influence of cultureA number of Authors have stressed the significance of the impact which national and contextual culture may make on goal-setting practices. Amongst these, it seems particularly interesting what Nyaw (1995) and Shen (2004) contend as regards China; both of them argue that large state-owned companies set goals also taking into account moral and ideological behaviour.
The different geographical context actually also impacts the way goals are agreed; the reference here is to the involvement or otherwise of the individuals concerned in the process. Goal-setting as a joint activity where individuals and their managers agree and discuss together objectives is mainly seen as a process typical of western countries and not promptly transferable to other types of cultures, especially those characterised by a high level of power distance (Fenwick, 2004), (power distance relates to the extent less powerful members of society accepts uneven distribution of power. Applied to businesses, power distance is associated with the extent of authority centralisation and the exercise of autocratic leadership styles).
The investigation conducted by Tahvanainen (2000) revealed that multinational corporations use to vary their goal-setting procedures according to the different countries in which these operate. She found out, for instance, that the German and Swedish business units of a Finnish multinational corporation were adopting a joint approach to goal-setting, whereas in the American business unit of the same multinational corporation goals were assigned to employees by managers.
In China, where national culture is extremely influenced by the principle of the “hierarchy respect” and by the fundamental requirement of an individual never having to lose his face, businesses not only use to assign employees objectives, rather than agree these with individuals, but also use to set goals, both in number and in nature, in order to facilitate their attainment (Lindholm et al, 1999).
How to set objectivesObjectives should be basically set in line with the results an organization is expected individuals to yield, on the basis of their capabilities and with reference to a pre-set period of time (a year, a semester, a quarter) or the conclusion of one or more assignments. As suggested by Armstrong (2006), goal-setting represents thus a very important stage of the overall performance management process in that it basically represents the tool enabling employers to properly define and manage the organization expectations and to gain clear and specific elements from which to start and develop performance reviews.
Goal-setting also helps employers and individuals to establish a clearer psychological contract. Especially in those cases in which objectives are jointly discussed by managers and employees, it represents a great opportunity for individuals to explore what their managers are genuinely expected from them. Performance reviews, nonetheless, may give employees the chance to achieve virtually the same result also in those cases in which organizations use to unilaterally assign goals.
Objectives, depending on their specific characteristics, can be classified into four main groupings:
Ø Work objectives – that is to say those objectives typically associated with and linked to a particular job and which can be identified and expressed as key result goals in role profiles;
Ø Targets – which are all of those quantifiable goals which can be by extension objectively measured in terms of, for instance: output, throughput, income, sales, number of complaints, cost reduction, level of service, etc.;
Ø Tasks – objectives that can be set according to the conclusion and achievement of single or of a number of tasks or projects within a specific time frame or on the basis of the attainment of the objectives identified for each stage of a project;
Ø Behaviour – despite behavioural expectations are usually referred to the entire workforce in that directly linked to an organization’s culture, core values and shared beliefs every so often managers also use to individually set behavioural objectives. Sometimes behavioural expectations could be expressed by specific and well identified examples of desirable or undesirable behaviour. This approach can turn to be particularly useful when setting performance level standards and reviewing performance (Armstrong, 2006).
S = specific and stretching: objectives have to be clear and promptly understandable by individuals. These also have to be challenging and demanding insofar as enabling individuals to stretch and exploit their full potential. Specific goals enable individuals to gain a better understanding of the barriers they have to overcome, the efforts involved and ultimately to gain conscience of the goals feasibility;
In those cases in which results can be promptly, quantitatively assessed, setting objectives is clearly more straightforward. In many other occasions, however, setting objectively measurable targets can prove to be a very tricky task.
M = measurable: despite this requirement is everything but straightforward to attain in practice, objectives need to be measurable according to a pre-identified rating scale. Even though it may prove to be impossible to have recourse to a clear assessment method, the manager feedback will enable individuals to understand the value and size of their actions and identify an indirect, unofficial way of measuring their performance;
A = achievable and appropriate: inasmuch as goals have to be challenging these also have to be realistic, otherwise individuals will never even try to achieve them to the detriment of their and of their organization’s performance. Objectives must also be appropriate to the role and skills of each individual;
R = relevant: aligned with the business’ goals and, also thanks to this circumstance, perceived as meaningful by staff;
T = timed or time framed: for the attainment of each objective has to be agreed a clear and pre-identified deadline.
In the list below are showed some examples of objectives typically applicable to the HR function staff:
Ø Individuals in charge of the company payroll – targets may include:
ü A maximum rate or number of mistakes in the payroll, per month or year,
ü The monthly deadline for salary payments is regularly met,
ü Response time delays reduction to employee queries;
Ø HR Advisors - objective-setting could be linked to the length of time these need to provide answers and sort issues out and to their capability of actually settle problems with no need of external advice or help;
Ø Line Managers – objectives may be linked to:
ü Their capability to avoid disputes to arise,
ü Their capability to resolve disputes internally, once these should arise, in order to avoid these to be brought before a Judge of the Employment Tribunal,
ü Performance reviews completion meeting a pre-set deadline,
ü Their contribution to reduce sickness rate;
Ø Recruitment and selection staff – goals may be determined with reference to:
ü The number of resignations received from new recruits within a certain period of time from their employment, usually 60/90 days,
ü The capability of newcomers to adapt to corporate culture or to already fit in with this,
ü The assessment of how successful and fitting for purpose have new recruits showed to be;
Ø Training staff - objectives could be set with reference to these professionals’ capability to relatively quickly identify and assess individual training needs and find appropriate and quality providers within budget constraints or at a lower-than-allocated budget.
Determining and identifying individual objectives is obviously easier whether managers have clear ideas of what the role of each of their direct reports consists in. For glaringly obvious it might appear to be, when agreeing and setting objectives managers should mostly focus on what they are actually expected from their reports. Careful consideration should also be given to the behaviour the employer is expected from each individual.
Once objectives have been agreed between managers and employees, or have been set by the former for the latter, managers and employees should regularly meet in order to:
ü Determine which objectives have been met and which are likely not to be met,
ü Discuss the difficulties eventually encountered and faced by individuals to meet their goals,
ü Agree whether any amendment has to be made to the previously agreed set of goals,
ü Discuss and assess whether the individual has the competencies and skills necessary to accomplish the future tasks and assignments,
ü Identify learning needs accordingly.
As for the way objectives have to be expressed and communicated to staff, it would be definitely better to express them in the “what” form, rather than in the “how.” More specifically, managers should discuss with employees what they are expected them to achieve, rather than how and in which way these are supposed to attain their goals. The “what” form reveals to be more powerful in practice in that enables individuals to better express their potential by autonomously designing and developing the approaches they consider most suitable and appropriate to the achievement of the agreed objectives. Explaining targets having exclusively recourse to the “what” approach, however, might give rise to some downsides; individuals in fact could deliberately or inadvertently resort to inappropriate ways to attain these. Notwithstanding, individual objectives should invariably aim at defining the final outcome expected by the employer, rather than the actions necessary to attain this or the way this have to be attained: “objectives are outcome/results oriented rather than task oriented” (Torrington et al, 2008).
Taking heed of the motivating effect that a “what” objective-setting approach can produce, to avert falling into the pitfalls typical of this approach, managers may consider adopting this method whilst eventually providing individuals just partial, limited indications of the “how” side. More specifically, managers may opt to provide employees indications concerned with the “how not”, rather than with the “how to” side of doing things. This approach enables managers to acknowledge an appropriate degree of latitude to individuals, who could be by extension enabled to express their potential and talent, whilst ensuring that these do not have recourse to inappropriate resources or solutions. By establishing a continuous relationship and exchange with their direct reports, managers should have no problem to find out when it will be the time to reduce and progressively refrain to provide individuals guidelines about the “how not” side of doing things.
In the event goal-setting should include, in addition to objectives, precise indications of the way to achieve these, individuals will completely be deprived of any latitude, personal involvement and meaningfulness in performing their tasks. Employees would feel as merely doing just what their managers ask them to do; objective-setting would not be perceived by any means as a compelling exercise and the individual level of motivation would be inevitably destined to drastically drop. That is why, according to the circumstances, an initial blended (of “what” and “how”) approach aiming at progressively leaving individuals full autonomy on “how” to attain targets, should be better pursued as the most appropriate by managers. In the event these should find out that individuals are not making any progress with their capability to autonomously cope with the “how” aspect of goals attainment, the developmental side of the performance management process should come to play. Managers should more deeply investigate which skills are lacking individuals insofar as preventing them to autonomously determine the most appropriate way to achieve goals and do whatever they can to bridge the eventually identified gap. In these cases, the manager support to individual development is clearly particularly crucial.
In line with the aim pursued by the overall performance management process, goal-setting should not just be limited to identify objectives producing well-specified outputs; attention should also be paid to goals which can be expressed by input targets. An objective-setting approach keeping in due consideration input targets enables organizations to develop individual competencies and skills which are valued and considered of paramount importance by the employers themselves (Armstrong, 2006). It is in fact developing individual abilities and capabilities that businesses are able to achieve their objectives and pursue their strategies. The more capable, skilled and knowledgeable people an organization and their managers are able to develop, the more ambitious objectives the management is clearly able to set for their reports. Since individual objectives and targets basically contribute to the attainment of the overall organizational success, the meaningfulness of this approach should be self-evident.
Longo, R., (2011), Goal-setting: How to set compelling objectives for individuals, HR Professionals, [online].
Extract from:Longo, R., (2014), Rhetoric and Practice of Strategic Reward Management; Milan: HR Professionals.