If you have read anything about designing incentive plans, you have probably encountered the perception that the only measures suitable to include in well-designed incentive plans are those that are objective and quantitative. We are told that subjective measures (or measures involving some level of management discretion) should always ruled out in favor of measures that are cut and dried, back and white. But in so doing, as a manager, you deny yourself access to many of the behaviors and outcomes that are most the most critical to success. These are the so-called intangibles.
THOSE PESKY INTANGIBLES
Most experienced managers will tell you that it is not years of experience or the level of a person’s education or the amount of training someone has received that sets them apart from their peers – it is something much more subtle. These things go by a wide variety of names:
- Leadership ability
- Work ethic
- Quick study
It seems like every company is constantly searching for people with these attributes. And when someone fails, it is often because they lack one of more of these characteristics. In fact, experience is best thought of not as the number of years someone has been doing their job, but in terms of how many of these qualities they managed to acquire during those years.
So if these, intangibles are so critical to success on the job, why are they so rarely included in incentive plans? The answer, I believe, is two-fold:
- Because it is believed that these characteristics are not measurable and are therefore poorly suited to incentives, and
- Because the person doing the measuring (i.e., the person’s manager or supervisor) lack these qualities making them a poor judge of whether or not they exist in others.
So in order to ensure that these essential success measures find their way into incentive plans, we must overcome each of these objections.
MAKING THE UNMEASURABLE MEASURABLE
Perhaps the easiest way to think about this is by way of analogy. Few people would deny that of all human endeavors, the one that places the greatest emphasis on measurement is sports – especially college and professional sports where considerable money is involved. With so much at stake, little can be left to chance or discretion. This is why athletic contests are carefully measured and monitored by time clocks, score boards, and distance markers. What’s more, participants in these sports are scrutinized and compared based on an endless array of statistics (batting average, RBIs, on-base percentage, ERA to name a small handful in only one sport).
But the seeming objectivity in sports merely an illusion -- In many instances, the subjective opinion of the referee, umpire or judge determines whether or not something actually occurred. A hitter’s batting average is a good example – it is heavily influenced by the umpire’s opinion of balls and strikes – a subjective measure. In almost every football game, a long yardage gain or touchdown is called back based on a referee’s subjective call. And this doesn’t even take into account malicious intent and game fixing by officials that has been prominent in the news lately. So even in the sports, which most people would consider to be one of the most measurable, objective and quantifiable environments around, it is heavily influenced by discretion and judgment.
Staying with the sports example for another moment, let’s look a bit further. One could say that baseball is a mixture of subjective (e.g., balls and strikes) and objective (number of runs scored) measures. However, there are entire sports where the winner is determined entirely based on judgment and discretion. Take for example, gymnastics, diving, ice skating, synchronized swimming, and freestyle skiing. Few people would dispute that these are all highly demanding and exceptionally challenging activities requiring extreme dedication, the pursuit of perfection, and skills of the highest order. Yet all are measured by entirely by judges. How is it then contestants can spend years perfecting such sports when success is so highly subjective? They answer to this question is the key to figuring out how to use subjective measures in business.
The reason that subjective sports are even possible is the existence of rules. And not just any rules, but highly specific, extremely meticulous guidelines that spell out in excruciating detail exactly what the judges are looking for. Just glance at the rule books from any major sport and you will see what I mean – they are as technical and detailed as any legal document. The existence of these rule books not only makes the contest fair so that participants can accept the outcome, but it also makes it possible for them to practice effectively by knowing in advance how they will be judged.
So now let’s apply this analogy to business. The so-called soft-skills mentioned earlier that are so crucial to success in the workplace are analogous to the sport we want an employee to learn. So if you, as the coach, want this employee to be able acquire the necessary skills you must do the following:
- Create clear rules that describe the specific behaviors you wish that person to exhibit.
- Clarify how you are going to determine whether or not success has been achieved (e.g., direct observation, surveys, interviews, personal conversations, etc.)
- Specify exactly who will be doing the measuring (e.g., the person’s boss, their peers, others within the organizations).
- Establish clear outcomes they must accomplish (this is analogous to an athlete’s practice regime).
Here is an example from the Leadership Effectiveness measure in Incentive Plan Builder:
THRESHOLD -- Demonstrate leadership skills appropriate for a member of the leadership team. This includes, but is not limited to, maintaining the proper attitude, presence and demeanor at all times; being visible and available to all employees; representing the Company both internally and externally in a professional manner; maintaining a positive, productive optimistic attitude; effectively controlling anger and frustration; establishing and maintaining effective working relationships with all staff, customers, and vendors (as appropriate to position). Threshold performance will be achieved when generally positive feedback is received by the CEO when he periodically contacts a cross section of employees and members of the management team requesting comments on leadership style and skills. It is okay for some areas for improvement to have been noted, but no substantive issues can have occurred. Success on this measure will be determined by the CEO
TARGET -- Consistently positive feedback is received by the CEO when s/he periodically contacts a cross section of employees and members of the management team requesting comments on leadership style and skills (see areas above). No areas for improvement have been noted and no substantive issues have occurred. Success on this measure will be determined by the CEO.
OUTSTANDING -- Unsolicited positive feedback has been regularly received by the CEO from a variety of employees at different levels and in different parts of the company. No areas for improvement have been noted and no substantive issues have occurred. Success on this measure will be determined by the CEO.
As you can see, these goals clearly describe what will be measured, how it will be measured, and who will do the measuring. These (plus when it will be measured if applicable), are the key elements to successful goal-setting for subjective measures.
MAKING THE MEASURER CREDIBLE
On of the key failings of subjective measures is the lack of credibility of the person doing the measuring. All too often, the person doing the measuring has less skill than the person they are measuring. This situation occurs frequently in sports. After all, how many professional basketball referees or baseball umpires have ever played the sport as well as the people they are judging?
When it comes to business, however, there are two unavoidable aspects to this reality. First, regardless of how competent or incompetent the manager is, and regardless of whether the employee approves of them or not, the judgment of the boss matters. That privilege comes with the job. Unfortunately, major discontent in this area usually leads to the employee voting with their feet which is an unacceptable outcome.
The second unavoidable reality, which is related to the first, is that the company suffers incompetent managers at its peril. This is where the sports analogy and the business analogy part company. If a manager is going to judge others on their skill level in an intangible area, they simply must possess that skill themselves. If they don’t, then the person above them should be putting the skill on their incentive plan before it goes on their employee’s plan. And so it goes all the way up the line. If you make it all the way to the CEO and still can’t find anyone who possesses the skill, it is time to reevaluate either your talent or your definition of success.
Hopefully you are now convinced that there is a place for subjective measures on incentive plans and are willing to give them a try. It takes some practice, but it is a skill well worth learning. Eventually, you will find yourself pinpointing a person’s key weakness and developing specific measures to strengthen that weakness. When you are able to do that, you do both your company and your employees a huge favor.