Now, what are we going to do about targets and bonuses? We are all judged by the targets that we've been set yet are chasing targets as a way of achieving a bonus always in the best interests of the company? In this article we look at whether this is in fact the case.
The first thing worthy to say about targets is that they are absolutely necessary. Trying to run a company with no targets is like a pen with no nib; pointless. They will at the very least supply a yardstick of where exactly the company is at and where exactly it's come from and in reality can be very motivating for all personnel involved.
But why do they always seem to cause managers and employees to behave like wild animals in their pursuit?
It's generally accepted that the introduction of a bonus automatically presents the potential for managers and employees to "work the system". This has been seen quite a lot lately with the bankers taking a bashing because of their general conduct and attitude towards bonuses. Therefore, in this light, could targets be viewed as a negative factor in management?
Targets ultimately mean the potential for bonuses and producing a bonus scheme that brings about a situation in which all employees act in the interests of an organization is virtually impossible. Say, for instance, a manager has got a retail target of £35,000 per month and let's say that anything in excess of that he or she retains 20% of as a form of incentive. If he / she achieves £45,000 sales in the month then 20% of the additional £10000 would actually result in a £2,000 bonus for the delighted manager. Well, shouldn’t he or she be delighted?
Unfortunately this is not always true. The trouble is that if the manager gets the £45,000 retail sales, the target for the following month will be (drumroll please) at least £45,000. So when the manager does exactly the same quantity of work and gets the same outcome he / she is going to go from making an extra £2000 to a further £0, also known as nothing. The consequence of this is that the manger is going to learn how to sandbag! Sandbagging consists of not doing as much business as you are able to in order to keep upcoming targets low and is an art among skilled managers. It implies that should you be having an excellent month then it might in fact be to your benefit to not exceed your current target by quite as much and steer well clear of all that follows.
This should also leave senior management with a small dilemma in regards to what sort of bonus scheme to apply. Will you employ accelerators? Or maybe even decelerators? Should you just offer a bonus structure for achieving a particular goal? The answer is not at all easy to come by. The smallest adjustment can and regularly does lead to perverse consequences for unassuming senior managers.
The reality is that the development of a bonus scheme will usually cause some type of unwanted effect from those given the task of hitting the relevant targets. It might additionally be worth pointing out that senior management in general appear to undervalue the impact that poorly structured bonuses might have on company performance. So, perhaps we should all be a little sceptical after all, right?