September 10, 2010

Employee goals = business objectives

If your company is like most businesses, your biggest expense and most valuable asset are one and the same: employees. To survive in today’s economy, companies have to maximize this human capital investment and find ways for their workers to perform to their full potential. A smarter and more productive workforce will help smaller businesses remain competitive with their larger competitors on the Front Range.

Most employers conduct traditional performance reviews. Unfortunately these tend to be more of a historical review of the past year and don’t necessarily ensure that an employee’s performance is aligned with corporate goals and objectives. This continues despite studies that show a significant increase in both employee and business performance when a company closely ties individual employee goals to the overall strategy. Managers may be shocked to learn that, according to research conducted for the Harvard Business School, only 7 percent of employees fully understand their company’s business strategy and what’s expected of them in order to help achieve company goals.

Business case for goal alignment

One study by the Workforce Institute found a direct connection between a company’s financial performance and an effective goal-setting process. It also found employees in the weakest-performing companies did not clearly understand the connection between their individual efforts and their employer’s overall goals.

Here’s a real-world example from a CEO of a small technology company in Broomfield. During a recent conversation, he said that only a handful of his 26 employees could clearly articulate their business goals despite them being reviewed in every staff meeting. He felt that without a clear line from the corporate goals to each employee’s own goals, the company would not achieve its financial objectives, which could jeopardize its ability to secure another round of funding.

That CEO clearly sees the top three benefits of aligning individual goals to corporate objectives:

  1. Increased operating margins. Individuals who clearly understand their goals – and how they relate to those of their company – become more engaged with their work. Once they see how they can make a direct contribution to their company’s success, they begin to focus on finding ways to work smarter and more efficiently, which leads to increased corporate operating margins and profitability.
  2. Quicker execution of company strategy. Clear goal alignment and visibility allows for quicker strategic execution by allowing the management team to effectively allocate labor resources across various projects.
  3. Reduced employee turnover. The business value of having employees engaged in their work cannot be overestimated. A 2007 Gallup poll showed that companies with large numbers of dissatisfied workers experience greater absenteeism and lower productivity-as well as a 51 percent higher employee turnover rate.

Pay for performance

Goal alignment also allows companies to establish a true pay-for-performance culture, which provides a foundation for closely linking reward systems with both individual and team performance. Most companies base their pay-for-performance plan on a “structured incentive scenario” where employees understand in advance what the relationship is between performance and reward. There are two common approaches:

  • Annual bonuses and merit increases, based on a typical review cycle with performance ratings linked to organizational goals.
  • Goal-driven incentive plans that fall outside annual review process and are tied to achievement of specific time-based goals.

For a successful performance-driven culture to be adopted, it’s important to gauge employee attitudes. In general, they need to:

  • Desire higher pay.
  • Have the skills and capabilities to improve performance.
  • Trust the company to administer the plan fairly, and pay if they improve performance.

By aligning a company’s objective with individual employee goals, the firm will be well positioned to achieve bottom-line goals while continuing to add to Colorado’s growing economy.

Annie Finnegan is Human Capital Director of TriNet.

If your company is like most businesses, your biggest expense and most valuable asset are one and the same: employees. To survive in today’s economy, companies have to maximize this human capital investment and find ways for their workers to perform to their full potential. A smarter and more productive workforce will help smaller businesses remain competitive with their larger competitors on the Front Range.

Most employers conduct traditional performance reviews. Unfortunately these tend to be more of a historical review of the past year and don’t necessarily ensure that an employee’s performance is aligned with corporate…

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