Connect Employee Accountabilities to Compensation

Video Transcript:

Most companies that we come across have accountability issues.

This is because companies don’t keep employees focused on a few key priorities and dial out the noise that keeps employees from delivering results.

Here we will talk about simplifying employee accountabilities.

How do you get your employees focused on the right priorities and the right results?

We have worked with teams large and small and developed a proprietary methodology to do exactly that.

It all starts with highlighting the key accountabilities in the job description.

Let’s examine a  job description for a production manager and make the employee more accountable, starting with a couple of tasks.

The manager must open the office and oversee production as part of their job. Saying this is not enough. We need to define the performance standard and make it measurable, so “Open Office” will change to “Open Office on weekdays no later than 7am” and “Oversee production” would become measurable by changing to “Meet Target Production Budget.”

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The next thing we need to do is identify what are the basic expected tasks of the job, i..e pre-requisites that the employee gets a base salary for vs. the move the needle items that go above and beyond and could qualify for incentive compensation.

These move the needle items become the accountabilities. From our experience, we know one truth, most employees cannot manage more than 3 accountabilities at any one time. As a result not every performance standard is an accountability. So opening an office is a pre-requisite and not a ‘move the needle’ item and therefore not an accountability.

But if we could improve gross margins, or better still if we could improve gross margins by 8%, that would definitely qualify as a move the needle item and therefore would qualify as an accountability. And if we can quantify the impact of accomplishing the accountability, we can then connect it to incentive compensation. To illustrate my point, Let’s go ahead and build a scorecard for this production manager and then connect it to incentive compensation.

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The first section of a scorecard should be ‘Key Accountabilities.’  Let’s put in the employee accountability of improving  gross margins by 8%.

Next is ‘Initiatives’ which in this case means: How Things Will Get Done.

It is critical that the initiatives have some form of measurement as well. In this case the manager must reduce cost of goods sold by 8% in order to improve gross margins by 8%, and therefore is provided categories that must also be reduced within cost of goods sold.

The next step is to identify the right Key Performance Indicator or Indicators associated with the goal. This is Gross Margin %. In the following column, we define the target for the key performance indicator which is set at 55%. It is then compared to the actual results. In this case this number is 52%. Next, the variance between the target and the actual is calculated which is a negative 3%. Next up is the Incentive associated with hitting the target. If the employee accomplishes the target, they are provided a predetermined incentive based on the result.

And last but not least is the rating column which rates the employee for that specific line item. In this case the employee did not meet the target, so they were assigned a “B” rating in the ratings column so they can take immediate corrective action.

Scorecards are tricky animals and not easy to create because not everything can be easily measured, and not everything qualifies for incentive compensation. Only the most important accountabilities which really move the needle in that employee specific role should be put in the employee scorecard so that you can increase employee focus around the things that really matter.

 

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