theceomagazine.com | 123ACHIEVABLE TARGETS
The current low-growth environment could
exacerbate the risk of this fake news.
“If the share price depends on maintaining
high levels of growth the CEO could be under
pressure to over-promise and tell
managers to do whatever it takes,”
says Stephen Walmsley,
KPMG Partner, Leadership,
Performance and
Reward. “The risk will
be compounded if the
managers have been
receiving bonuses so
regularly that they rely
on them to maintain
their lifestyle.”
The consequent
anxiety can also take a
physical and psychological toll.
“A certain amount of pressure
is good as it keeps us on our toes and helps
us to develop and grow,” says Dr Lynda Shaw,
a cognitive neuroscientist and business
psychologist. “But chronic stress keeps the body
in a constant state of emergency, interfering with
sleep and causing you to become moody,
irritable and easily distracted. This is not a good
state for optimal decision making.”
The most effective targets are a stretch but
ultimately achievable.
“We find that many companies are internally
focused and assume that, if their business grew
by five per cent last year, it must be the same
goal for this year. That’s not necessarily so,” says
Walmsley. “It’s vital that you look at performance
in the context of the broader market. If the
industry is contracting you’d have to win a lot of
market share to maintain the same growth.”
RETHINKING BONUSES
There could be a case for rethinking the whole
bonus system.
“Bonus programs with prescriptive measures
can blinker people,” says Walmsley. “If I say you
need to lift profits by 10 per cent you’ll go all out
to do it even if it would be more productive to
lift profits by five per cent while setting up a
lucrative 10-year contract or creating
opportunities to grow by 15 per cent next year.
You’re also likely to focus on the things that are
easiest to achieve rather than those that would
be of most long-term value.”
When there are cascading performance
measures throughout a company it’s possible for
managers and employees to collude in hiding
the real numbers from people upstream.
“It takes very close monitoring
to be sure that someone isn’t
overstating or changing the
odd number to hit a
target,” says Walmsley.
“The bigger the
company, the harder it
gets, and it’s especially
difficult when
companies are
dispersed regionally
or internationally.”
As a motivational tool,
bonuses may be better suited
to the shop floor.
“Studies suggest they’re more effective
for rewarding repetitive tasks than encouraging
the skills we want to develop in our managers,
such as anticipating and solving problems, and
identifying opportunities,” says Walmsley.
And, while money is known to be an
important motivator, it’s not the only one.
“Managers will feel more empowered to
achieve what’s being asked of them if they
understand how their contribution fits into the
bigger picture and believe that it is recognised
as both valued and valid,” says Shaw. “Setting
targets should always be a team effort rather
than an arbitrary imposition. People want to
feel sure that their voices are being heard.”THE RIGHT CULTURE
Ultimately, the way people choose to behave
will be shaped by corporate culture.
“This will always reflect the way the
company is being led, so the CEO needs to
make sure their leadership style is articulated
and understood throughout the organisation,”
says Walmsley. “All employees need to feel
confident that they’ll be treated fairly and that
they can call out bad behaviour without being
victimised. If they know that, as long as they’re
doing their best for the company, they won’t be
punished for something beyond their control
they’re more likely to do the right thing.”BONUS PROGRAMS DON’T
NECESSARILY FOSTER
MANAGEMENT SKILLS.
THEY CAN ALSO MOTIVATE
MANAGERS TO FOCUS ON
SHORT-TERM GAINS
RATHER THAN
LONGER-TERM GROWTH.Number crunching | INVEST