Bosses should stop setting targets

THE trouble with targets is that bosses set them.

If you are a boss and you are setting targets for your senior colleagues you are doing the wrong thing. Let them set the targets and the outcomes will be better.

Of course, there is more to it than that. You will not reduce your own workload by doing what I suggest. In fact you may even increase it a little, but, in the process, you will remove many pointless tasks and much fruitless negotiation.

What is behind the idea that people should set their own targets?

Taking responsibility for one’s own success

Vigorous and thoughtful participation in the business or enterprise. This should make them feel involved, committed and responsible for its success.

Observing the changes that have been occurring in employer-employee relationships, you can see that something fundamental has been happening. Faster communications, Covid and WFH are all causes but there is a more basic reason, too – the majority of people have changed their purpose in life from “having a successful family” and “getting a good job” to “being happy”.

It is a totally reasonable objective – indeed, it is what everyone has had all along.

We haven’t talked about it in the past, as though to do so was in some way sinful. If you mentioned happiness as a life purpose at a job interview five years ago, you were politely shown the door. Speak of it today and you will be welcomed into many companies. They are the ones that are winning. The big tech companies may appear ruthless but they are careful to be winsome, too – that means getting your colleagues to play a positive, useful part in the organisation.

Rewards should be more than just about supply and demand

The basis of wage levels is supply and demand. If more people want jobs than you need to employ, you can squeeze wages; if fewer than you require, they will squeeze you.

It’s a negotiation, isn’t it? Not nearly as much as it used to be, actually. A congenial, caring company to work for is worth more than the hassle and mental stress of a bully-based business. Since the CEO can’t be forever chatting with all his/her employees, it is better to get them business engaged – and reward them when they do so profitably.

Surely if people set their own targets, they will simply make them easy to achieve?

That wasn’t my experience with Cerebos Pacific, which I built over a period of 11 years, from a business worth S$10 million to one that sold for S$825 million. But then, their bonus was based on their achieving the targets that they had set.

I never set a target for my colleagues. I never accepted a target from my UK parent company who owned 70 per cent of the business. How did the employees participate and become richer at the same time? Not by setting easy targets.

I got them to forecast.

Units running themselves

This presupposes a pattern of management that I can recommend – smallish units running themselves. It is also a precondition of this system that the employees are well-paid – I aimed to ensure that their wages would be about 10 per cent to 12 per cent above the going rate for their job – but any improvement above the average is enough to make the system work. You just need to be certain you have excellent people at management level.

Each unit has a small number of departmental managers – usually between three and eight – and one boss. The boss involves his managers in setting the targets, the principal one of which is, of course, working profit defined in the way most suited to the type of business.

The bonus for the year is paid on the achievement of the working profit target. Using arbitrary figures purely as an example, if the target was the same as last year’s result the bonus might be 0 per cent. If the result was double last year’s, the bonus might be 100 per cent of salary for all members of the management team. In between these two levels of achievement the bonus would be pro rata. Please be aware that these figures are only illustrative examples.

This is not the target. It is the level of bonus payable if the target is achieved. The boss of the unit decides the target. He has the pressure of those of his colleagues who participate in the target setting. They usually want to increase the target because they aim for the largest possible bonus. His own inclination will be more cautious – to keep the target low enough to ensure at least some bonus. These opposing pressures between the unit boss and his management team yield excellent forecasting.

Benefits of forecasting

Of course it is not perfect. Many things outside the control of the team and the boss will influence the outcome. So is the system unfair? Certainly. Just like life, it involves making a guess about circumstances beyond the team’s control.

So business is rough. I was happy that my managers understood that. On balance, the bonus scheme was generous enough for those involved to have a decent bonus most years. To it I added stock options that became quite valuable when the company was sold.

So I didn’t set the target; the team of each unit did that. Because they had set the target they were more than usually dedicated to achieving it. That is what they were paid for.

But suppose they beat the target? In 1988, one of my operating units did twice as well as its target. So what was their bonus for that achievement? It was exactly the same as simply achieving the target they had set – no more. Sounds unfair, again, but I was not about to pay for poor forecasting, only for achieving what they said they could do.

Another rough and tumble of life? I wanted tough managers. This produced them.

An unforeseen advantage of this system was that it tended to “smooth” the profit growth. In years when a unit was going to exceed the target – and as they got no bonus benefit from doing so – they would push the profits into the next year.

When they looked like falling short of the target they made efforts to increase it even if that meant punishing the following year’s result a little. A smoother profit progression always increases the investors’ valuation of a business. Steady growth convinces investors it is continuing growth.

The CEO’s role

It will not have escaped your notice that while I did not set the actual target I did set the “range of targets” from which a team would select its own target.

In the end it was my responsibility as CEO to see that the business performed as well as it could. Many CEOs would have assumed that meant they had to choose the actual targets.

But business is competitive and involves speculation. What I wanted was winners, not just target achievers.

When the condition for a super bonus is achieving the target you have set for yourself, you stretch every muscle to achieve it. You manage your profits. When you achieve success it is your success, not anyone else’s.

Did such pressure make my unit bosses and managers resent me? I don’t think so. For the 30 plus years since we sold the business they all remember my birthday.

That is a fairly sincere form of friendship, I think.

The writer is founder and chair at Terrific Mentors International