When More Than Quantitative Incentive Criteria is Needed
It is a common practice to select between two to five metrics to use for incentive criteria. Incentive criteria are usually a combination of financial, non-financial and strategic metrics. When the eligible company population includes multiple levels of employees, metrics are weighted based on ‘line-of-sight’, with executives having the most weight on corporate metrics. Each metric is based on a goal that indicates what level of achievement is needed, for example revenue of $100 million. Each metric should also describe what is the minimum level of performance and maximum level of performance that will qualify for a payment, for example, a revenue threshold of $80 million and a maximum revenue of $120 million.
Quantitative goals can be relatively easy to describe at three performance levels but what about important metrics that can only be described in terms of qualitative goals?
Qualitative Goals and Measurement Approach
We utilize four ways to create qualitative incentive criteria goals and measurement:
- Checklist – A list of unrelated goals or objectives which will result in a specific outcome.
- Milestones – A list of steps that need to be accomplished in meeting a specific outcome.
- Quality – A number of points to be achieved that address the quality of the outcome or result.
- Performance Range – An acceptable range of achievement.
The following human resource examples could be applied to all who work in the department or just one position.
After showing how to describe the goal and measurement, the example is also displayed on a scorecard illustrating how to include along with quantitative measures.
Qualitative Goals and Measurement Examples
1) Checklist Example: A list of goals expected to be completed by human resources by the end of the calendar year, either assigned to an employee or the entire human resources department.
- Develop and implement a new employee engagement survey
- Launch a mentorship program within the organization
- Reduce time-to-hire by 15% for all open positions
- Increase employee participation in voluntary benefits programs by 10%
- Conduct a market analysis to ensure compensation packages are competitive
Description of Metric Threshold Target Exceptional
Achieve Checklist of 5 HR Goals 3 4 5
If the employee completes any of the 4 goals, the payout is at 100% of the value assigned to this goal, at a minimum 3 out of the 5 results in a threshold payout of 50% of the target and if all 5 are completed, then an exceptional payout is earned at 200% of the target.
2) Milestone Example: A list of steps that need to be accomplished in meeting a specific outcome. State the outcome as the objective and the steps or milestones aligned with the performance levels.
Goal: Develop and implement an employee engagement survey
Milestones:
A. Complete the survey design by defining the objectives, developing survey questions, selecting the survey platform and pilot testing and refining
B. Launch the survey and collect responses by communicating the survey, promoting participation and achieving the targeted response rate
C. Analyze the data by gathering the data, identifying trends, preparing reports and developing an action plan to address findings
D. Communicate and implement by sharing results, implementing an action plan from the findings and addressing employee feedback
Description of Metric Threshold Target Exceptional
Develop and implement an Employee A&B C D
Engagement survey – A, B, C and D
Milestones
If the employee completes A&B milestones, the payout is 50% of the employee’s target bonus for this metric. If A, B and C are completed, the employee earns the target bonus percent of base salary for this metric. If all 4 milestones are achieved, then an exceptional payout at 200% of the target bonus for this metric is earned.
If timing or dates are important to receive credit for completion, dates could be added to each milestone and each milestone could be a separate metric. This would allow individual milestones with expected completion dates in the calendar year to be assigned individually as a metric, e.g., the threshold for Milestone A (above) would need to be completed by end of March, Target would be completing the milestone by end of February and Exceptional would be completed by end of January. See #4 for an additional illustration on using timing.
3) Quality Example: The quality of the outcome or result as measured in points
Goal: Develop and implement an employee engagement survey
Measurement: Target # of points for this measure is any combination of 12
Elements: Budget, Timeliness, Response Rate, Quality
Evaluation: Various point assignments based on desired elements.
Description of Metric Threshold Target Exceptional
Develop and implement an Employee 4 points 12 points 20 points
Engagement survey within Budget on Time,
with an 80% Response Rate, within defined quality standards
Each of the four aspects of the project completion has points assigned to it at threshold, target and exceptional. The total points are transferred to “if an employee completes A & B milestones, the payout is 50% of the employee’s target bonus for this metric”. If A, B and C are completed, the employee earns the target bonus percent of base salary for this metric. If all 4 milestones are achieved, then an exceptional payout at 200% of the target bonus for this metric is earned.
4) Performance Range Examples:
Goal: Develop and implement an employee engagement survey
Measurement: Achieve a desired response rate (e.g., 70% or higher)
Description of Metric Threshold Target Exceptional
Percent of Employees Completing 70% 80% 90%
the Engagement Survey
If the response rate is 80%, the payout is at 100% of the value assigned to this goal. With a 90% response rate, the payout is 200% of the bonus target for this metric. If the response rate is 85%, this is an example of how interpolation is used to calculate a relative payout of 150%.
Goal: Develop and implement an employee engagement survey
Measurement: Timeliness of completing the goal
Description of Metric Threshold Target Exceptional
Engagement Survey Date of Dec ’24 Oct- Nov ’24 Aug – Sept ’24
Completion
If the project (developing the engagement survey) is completed any time between October and November, the payout is 100% of the bonus attributable to this metric. If the project is completed early, before October, then the payout is 200% of the bonus target attributed to the metric. The project has to be completed by December to receive any credit for this project, 50% of the bonus target payout for this metric.
Summary
Qualitative goals can successfully be measured and included in an incentive scorecard with quantitative goals. They can be goals for an individual participant or represent a department goal. Which of the four approaches used depends on the type of goal and the most effective way to measure it.
Wilson Group guides clients in the design and implementation of incentive plans with a focus on the most effective measures that are clear, specific, well understood, and drive an organization’s strategic objectives. If you would like more information or assistance aligning your needs with the solutions, please reach out to us.
