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Here are three things to consider when setting 2021 KPIs

Performance management is a key part of organizational culture and leadership messaging. The way goals are set affects people’s behavior – Key Performance Indicators give employees guidance on how to act and prioritize.

It has long been established that challenging goals lead to superior effort and performance. That said, in some circumstances, performance benchmarks can drive inappropriate and unethical behavior. To make sure you steer employees and their performance in the right direction, here are the top three things to consider when working on 2021 annual targets.

Incorporate values-driven behaviors. Most organizations today have an established set of “core values.” While these values are usually presented as the fundamental principles that guide business and employees, they are often missing in the performance management process. Values manifest themselves in behaviors – to be judged on whether you have integrity; you need to do something that demonstrates it.

Therefore, you need to develop descriptions of the expected behaviors that express your core values. To maximize the acceptance by employees, these descriptions need to be understandable and straightforward – good examples would include the following: lead by ethical example under challenging situations, be transparent in decision-making, apply ethical decision-making frameworks in everyday decisions. And it’s not just about writing these descriptions down – it is about investing time and effort in regular dialogue during the year to incentivize the values-driven behaviors.

Account for potential ethical dilemmas. Another common problem is putting too much emphasis on short-term gains, creating environments where the ends justify the means. Indeed, many (if not all) of the well-publicized corporate scandals result from the obsessive pursuit of financial outcomes and performance goals, driving an “at any cost” attitude. One well-known example comes from Wells Fargo.

Its former CEO’s mantra to employees was often “Eight is great,” meaning get eight Wells Fargo products into the hands of each customer when the industry average was between two and three. This target’s difficulty led employees to cut corners, open more than 1.5 million unauthorized deposit accounts, and issued more than 500,000 unauthorized credit card applications. When developing KPIs, leaders should always consider which undesired consequences these KPIs could have, including unethical behavior, and how this could be improved.

Ease the pressure. Targets, goals, and tasks should be challenging yet achievable. A wealth of research confirms that unrealistic targets and belief in growth at all costs create “tunnel vision” and excessive pressure. This pressure to meet a target or a deadline causes us to shut down the moral radar to maintain focus on a limited area and ultimately leads to moral blindness. In other words, the attainment of the goal comes at the cost of other considerations, such as ethical conduct. To alleviate the strain, employees may respond by violating laws and internal procedures.

Therefore, leaders should set reasonable expectations and look for warning signs of mental exhaustion and stress, which is even more relevant in the time of the Covid-19 pandemic.

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1 Comment

  1. Thank you, Vera, for discussing this very important point. Incentives and evaluations are used because they drive behavior. If you want a company that is ethical and compliant, then you have to address this issue. The reason I wrote a white paper on incentives, Murphy, “Using Incentives in Your Compliance and Ethics Program” (SCCE; 2012), , is that there seemed to be constant resistance to doing anything in a compliance program related to incentives.

    Based on your points, I would also recommend that the chief ethics and compliance officer always be in the room when incentives and KPIs are being developed. When the CEO is saying “8 is great” someone needs to be there asking, “yes, but if we do this what’s the worst that might happen.” The CECO needs to ask the tough questions. Then, whatever incentive system is implemented, it needs to be monitored to see how it is affecting behavior, and whether employees are gaming the system.
    As the late management expert Peter Drucker said, people in organizations respond to what gets recognized and rewarded; the rest is just preaching.

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