Driving individual performance

Remember the Tom Cruise movie, where he's a sports agent, and the guy he's representing reminds him what's important. Well, in high growth markets, finding good resources is a constraint, and cutting a fixed paycheque isn't enough anymore.

Looks like you are going to have to turn into Tom Cruise (not a bad option), and learn how to respond to employees' needs nowadays. They may not be as vocal as Tom's client, but the thoughts are the same. Loud and clear - "show me the money!"

It is therefore essential to add a strong annual component of variable compensation based on meeting specific targets. The concept is not new.

For years, Key Performance Indicators (KPIs), Key Result Areas (KRAs) and Management by Objectives (MBOs) have existed.

But their importance today is more crucial, especially with their link to compensation.

Surveys indicate that employees place 60 per cent importance on compensation, and the balance on hygiene factors. In the Middle East and Asia, the 60 per cent can rise to 75 per cent, so let's get it right.

Measures

Designing good Individual Performance Measures (IPMs) starts with the issue of what to measure. It is important to have clarity on the way-forward strategy, and if you have built a Enterprise Performance Measurement System or Balanced Scorecard, you should be quite clear on what the top 30-40 strategic corporate objectives are. Use them as a reference framework, combined with the operational responsibilities to identify key measures.

Remember the most important factor is that you must measure performance on factors directly under the employee's control. Too many times, corporate profit has been used as the primary measure for many employees. That's too generic and the person often cannot directly relate to or drive it. So it is better to get more specific.

How many measures does one need? Not more than four to six. When companies try to measure on fifteen to twenty measures it never works. When a firm finds it hard to meet four different targets consistently, how can one expect an employee to do so?

Balance

Also balance these measures out between financial, customer, process, organisational and IT.

The next issue is the importance or weightages to be assigned to the measure. It depends on the importance of the measure in terms of the strategy, and the person's role.

Setting targets on these measures becomes an issue. There is always a tendency to play with the target number - the employee wants to make it easy, and the employer more difficult. It is best to do it in an honest way. If a couple of the four to six targets need to be aggressive, make them aggressive, but support the employee if he/she needs corporate assistance to deliver those.

Finally, make sure that it is easy for the employee to understand, and at the end of the day, you can accurately measure the inputs. And let the money at the end of the IPM rainbow be real. At least 15 per cent of fixed compensation at the junior level is going upto more than 200 per cent for the CEO. If you show employees the money to drive performance, meeting the same expectation from the shareholder will be easy.

The writer is the managing director of Cedar Management Consulting International.