Building your team Featured

7:00pm EDT December 26, 2009

It’s more important now than ever to make sure that you’re hiring qualified and honest personnel as companies simply can’t afford to make a hiring mistake or hold on to an underperforming employee.

Businesses also need to be prepared for when the economy recovers and there is a change in the balance of power between companies hiring and people looking for work.

To make sure that you’re in a solid position, you need to measure performance and set clear goals for employees. And if you have a solid incentive plan, it’s more likely that employees will stay with your company, creating even greater levels of loyalty and engagement.

“Performance measurement and goal setting are an essential part of any business,” says Adam Wadecki, manager of operations, Cendrowski Corporate Advisors LLC. “These processes ensure that everyone is working toward a set of unified goals and that employees are properly incentivized in performing their jobs.”

In today’s world, money talks. Employees place a high value on incentives and — like it or not — incentives are strong motivators. A well-designed incentive program gives your employees an extra reason to perform at the highest levels and a good program will help you attract the top talent in the job market.

Smart Business spoke with Wadecki about performance measurement and goal setting, the value of a good incentive plan and how to determine — and deliver — the incentives and benefits that today’s employees value most.

What types of metrics should be included in a business’s goal-setting process?

Before the 1990s, many organizations primarily focused on financial metrics in their goal-setting processes. However, with the advent of the Balanced Scorecard, organizations today set goals in several areas, including operations, customer satisfaction and internal growth. The Balanced Scorecard is a strategic performance management tool for measuring whether the smaller-scale operational activities of a company are aligned with its larger-scale objectives in terms of vision and strategy.

By focusing not only on financial outcomes but also on the operational, marketing and developmental inputs to these, the Balanced Scorecard helps provide a more comprehensive view of a business, which, in turn, helps organizations act in their best long-term interests.

Operations goals might include those associated with the attainment of specific levels of quality or waste reduction, and customer satisfaction goals help the organization ensure that its products remain relevant in the marketplace. Also, internal growth goals are key to making sure employees maintain a high degree of satisfaction with their jobs.

What are some types of internal growth goals companies can set?

Internal growth goals are often overlooked and their importance is frequently underestimated. One of the most important items a business can have is an anonymous employee suggestion box. This box provides a method for employees to communicate their ideas to management, even if they feel uncomfortable doing so in the direct presence of their managers.

Businesses should track not only the number of employee suggestions implemented but also the number of suggestions received. If a business does not receive suggestions, it might indicate that employees feel managers will not value their thoughts.

Other internal growth goals might include the requirement that employees complete a certain number of hours of outside training.

What should managers bear in mind when setting goals for employees?

The key adage to remember is, ‘What gets measured gets done.’ Goal-setting procedures often provide employees with a good set of key metrics they can try to achieve. However, these goals should be balanced across several dimensions to ensure that the process isn’t subverted by the actions of employees.

For instance, some plant managers of manufacturing operations receive merit pay based on the number of products shipped every month. While this seems like a laudable reward for keeping the production line running smoothly, some plant managers mandate that all products be shipped to retailers at the end of the month regardless of the products’ performance in quality inspections.

Such an action could have been prevented by issuing merit pay to plant managers based on the number of units shipped and quality performance.

Many organizations incentivize employees to meet aggressive ‘stretch targets.’ What types of issues might arise with these goals?

Stretch targets allow boards to push the boundaries of organizational growth. They are designed to be goals that can be achieved with extreme dedication of the entire team. However, stretch targets can pose numerous corporate governance issues.

For instance, if the targets are too aggressive, they may incentivize employees to sacrifice long-term gains in order to meet short-term goals. One could argue, for example, that the compensation schemes of many bank executives prior to the 2008 crash incentivized improper behavior.

Directors, executives and managers must be careful to impose realistic goals for subordinates that will not encourage damaging behavior when establishing performance review metrics. This maxim holds true at all levels of the organization.

ADAM WADECKI is manager of operations for Cendrowski Corporate Advisors LLC. Reach him at aaw@cendsel.com or (866) 717-1607 or visit the company’s Web site at www.cca-advisors.com.