Handbook of Corporate Performance Management

Chapter 6

Target Setting

6.1 INTRODUCTION

When you think about setting targets the words ‘high but achievable’ probably spring to mind. You need to set targets at a high level to stretch people, but the targets need to be perceived as achievable if people are going to accept the stretch. However, in real life the world is much more complex than this. Many companies use performance targets for influencing the behaviour of their employees, but the results these companies obtain are not always the ones they expect.

There is often justifiable concern over the impact of targets on behaviour and ultimately on organisational performance. Managers implicitly believe that setting targets works, but the BP Gulf oil spill disaster and other related events make some people question the benefits of target setting. This is exacerbated by disagreement in the academic literature, where researchers who specialise in motivation stress the fact that performance targets are key mechanisms for improving performance while those researchers from a Total Quality Management background suggest that the use of performance targets can be detrimental as they generate stressful work environments, a low trust culture, data manipulation and poor performance.

As you can see, target setting is fraught with difficulty. It becomes even harder when you use targets as part of the reward system. Suddenly, targets take on an even greater personal importance to individuals and the incentives to manipulate and cheat increase. ...