Implementing a bonus system requires setting performance objectives that are consistent, realistic, motivating, and above all, fair. Ensuring fairness in the objectives assigned to employees is a delicate task that demands rigor and method. Thibaud Cukierman, Manager of the Consulting Department at Primeum, explains how to create fair performance objectives.
"Fairness applies to a group and involves giving every member the same chance of success, regardless of their starting position."
– Thibaud Cukierman, Manager of the Consulting Department at Primeum.
Before addressing the fairness of a performance objective, it’s important to define whether the objective is qualitative, quantitative, or a mix of both. According to Thibaud Cukierman, the way an objective is calibrated depends on its nature. Qualitative objectives are often part of a management-by-objectives (MBO) system, where the manager defines the employee’s overarching qualitative goals over a long cycle. In reality, this is more of an evaluation by the manager than an actual objective, as fairness is difficult to measure.
Quantitative objectives, on the other hand, fall squarely within the realm of fairness. The challenge is to ensure that no employee starts their performance cycle with a disadvantage or an unfair advantage. Employees at a disadvantage will feel demotivated and won’t strive to meet objectives they perceive as unattainable. Conversely, advantaged employees might view their objective as a given and consider the associated bonus as part of their fixed salary, thereby failing to push beyond their usual performance. In both cases, a lack of fairness harms motivation and performance.
It’s important, however, not to confuse fairness with equality. While ensuring equal chances of success is crucial, these chances must be individualized. Objectives should be tailored to each employee’s specific situation. Giving everyone the same reward, regardless of performance or starting potential, is unfair to those who overperform and overly generous to those who underperform. This approach risks demotivating the team and reducing overall performance. To avoid this, companies must accurately assess each individual’s potential and adjust performance goals based on various factors unique to their situation. The key is to individualize performance objectives as much as possible.
"A fair performance objective is ambitious but always achievable."
– Thibaud Cukierman, Manager of the Consulting Department at Primeum.
Fair performance objectives require the right KPIs. Every role can have KPIs, provided the indicators are measurable and quantifiable. Thibaud Cukierman notes that defining these KPIs is typically the responsibility of headquarters, as they set 1–3 indicators per role (sometimes more, although this is not recommended). Establishing these indicators is a strategic decision for the company, and they form the foundation for developing performance objectives.
Before assigning objectives, it’s essential to test and verify their fairness. Historical data and statistics allow companies to run simulations and check past performance cycles to ensure there’s no correlation between achieving objectives and pre-existing conditions (e.g., initial sales volume or recent performance trends). Regardless of each employee’s starting point, success should not be influenced by these factors. Additionally, it’s important to account for each employee’s skills and experience.
Transparency is key. Employees must understand the rationale behind their objectives. If no formula is used, the principles underlying the objectives and expectations regarding the employee’s potential should be clearly explained. Since a simple formula rarely ensures optimal fairness, more advanced algorithms are often required.
Each performance objective should be tied to a target bonus, representing the reward for achieving 100% of the goal. However, flexibility around the target bonus is essential. For instance:
This system adds motivational value to the target bonus, giving the performance objective its full significance.
Calibrating objectives and ensuring fairness requires precise tools and methodologies, often involving algorithms. While managers may not always have the resources to independently set fair objectives, they can adjust them to better match each employee’s profile and circumstances, refining results generated by algorithms. Setting objectives individually requires a high degree of managerial courage, as it involves risk and accountability.
There are three levels of performance objectives:
These serve different purposes and require different calibration methods. Thibaud Cukierman notes that while collective objectives can foster team synergy, individual objectives might be more effective in organizations with sector-based systems or individual-focused performance. Combining individual and collective objectives can be a smart strategy depending on the company’s overall goals.
"If it’s not possible to ensure fairness in performance objectives, it’s wiser to consider other bonus mechanisms."
– Thibaud Cukierman, Manager of the Consulting Department at Primeum.
Performance objectives are not suitable for every company. Startups or businesses without sufficient historical data face risks, as they cannot verify that objectives are fair, realistic, and ambitious. Similarly, entrepreneurial companies where employees are responsible for their own revenue may find performance objectives less relevant, especially if they lack a strong managerial system or the ability to quantify performance and choose appropriate KPIs.
Ensuring fair performance objectives means accurately modeling the individual potential of each employee. By personalizing objectives and using rigorous methodologies, companies can give everyone an equal chance of success, boosting team motivation and overall performance.