Compensation Plan Design

Tag Archive for 'Management by Objectives'

A review of Callidus Software’s New MBO Solution: TrueMBO

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on April 30, 2009
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Before I left on vacation, I wrote a few posts on Management by Objectives (MBO), but I didn’t have time to post the solution reviews before leaving. I will now resume this series by posting a quick review of one of Callidus Software’s latest on-demand offering called TrueMBO.

As I mentioned in the previous posts, administering the MBO process can be very time consuming. TrueMBO eliminates the need for back and forth e-mails between employees and managers when objectives are being decided upon, and also later when employees are assigned a performance achievement for each objective. It can also be used as a central point to administer MBOs company-wide.

When a manager logs in TrueMBO, he or she will see 3 sections; one section displays the MBO programs currently setup, another is the Inbox section where managers and employees can exchange messages related to MBOs, and the last section is for the many pre-configured and customized reports.

Clicking on the name of the MBO Program opens up a new tab with additional information and options. In this tab, a manager will be able to set objectives for the program, to score these objectives, and to notify the team of their performance. The Organization Hierarchy panel shows the manager’s subordinates. Finally, the Team Status provides the most useful information to the manager by illustrating the MBO phase in which each team member is.

Setting up objectives is also a very intuitive task, where objectives are being given a name and a weight (which must total 100%), and a target payout (how much money is earned if the objective is met). These objectives can also be picked from previously used objectives, or from a library which can be defined by an administrator.

The employee’s interface is even simpler than the manager’s, and provides the employee with the ability to exchange messages with his or her manager, to participate to setting up and accepting their objectives, to approve the ‘scores’ and associated bonus received, and to view various reports related to their performance.

If you are looking for a simple on-demand solution to administer your performance evaluation process, TrueMBO could be the right solution for you. TrueMBO will appeal in particular to companies already using Callidus Software’s solutions because of the possible synergies with the Callidus Sales Performance on-demand applications (hierarchy maintenance, performance calculations, etc), but it can also be used as a standalone MBO solution. TrueMBO is available for 5$ per employee per month until the end of June 2009.

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MBO Process Cycle and Where Software Applications Can Help

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on March 4, 2009
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Here is a quick 5 step process outline that most companies use to manage MBOs (Management by Objectives), recapping some of the things I talked about in my last post.  As you will see, this is just common sense.

First, companies need to set corporate objectives.  Some goals are then set for the employees to meet those objectives.  The employee performance is then measured through the performance cycle, and evaluated at the end.  Finally, the employee is rewarded for his or her performance, and we repeat the cycle.

To elaborate on the comments I received in the last post, setting good objectives is very important; that’s at the core of MBOs.  Depending on the level of sophistication of the MBO solution, some help with objective setting, but most solutions simply help out to manage them.

A big aspect of MBO solutions is the performance monitoring.  Traditionally, that’s an activity performed at the end of a performance cycle.  With an MBO solution, managers can usually record some feedback about how employees performed on a certain milestone at anytime.  This way, the employee’s contribution is not forgotten when it’s time to evaluate them.

The performance evaluation is another big piece of MBO management. It is related to performance monitoring but records final observations.  For example, during the performance monitoring phase, a manager could record that an employee performed a certain task well, handled another sitation very well, and attained a certain objective.    The performance evaluation phase is when the manager will quantify and finalize how well an employee performed against his or her goals.  That’s usually recorded in form of a numeric scale (1 to 10) or a percentage.

Input from spreadsheets traditionally ends with performance evaluation.  However, MBO solution typically makes it easier to reward employees for their performance.  Many solutions allow managers to assign a number of dollars, within a certain range, for each set of objectives.

But managing the MBOs workflow is not the only benefit to look out for in a tech solution.  Through analytics and business intelligence tools, it should be possible to gather information about our MBOs.  This will help in determining how good the MBO program is (are we throwing money out of the window or is rewarding performance actually increasing it), determine the overall cost impact for a certain department or for the entire company (what if all employees exceed expectations), and more importantly, this insight should help us in setting better goals for low and high performers alike during the next MBO cycle.

Used properly, MBOs can become a powerful tool not only to incent employees, but to determine their performance over time and to better manage them.

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Management by Objectives

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on March 3, 2009
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I’ve talked about MBOs – Management by Objectives – a few times before, but I will dedicate a few posts to this topic. As a quick reminder, MBOs is a process where measurable objectives are set, and the employee performance is then measured against those objectives. The goal is to increase the workforce’s performance and engagement through proper motivation. MBOs are particularly important because they are not only for organizations with a sales force; any employee can be incented with this strategy, and as such, most type of organizations use them in one way or another.

The other reason I want to talk about MBOs is that software vendors are slowly broadening their offerings.  Instead of having one IT solution to align objectives to corporate goals, one workflow solution to calculate incentives against these goals, one solution to manage sales compensation, etc, single vendors are starting to cover the entire spectrum with a single variable pay solution. That’s what is called “pervasive performance management”.  Software providers in the sales performance space are starting to offer MBO functionality, and MBO software providers are starting to offer sales compensation modules.

So how do MBOs typically work? There are a lot of resources out there on this topic. Typically, the employee is asked to define SMART objectives; objectives that are Specific, Measurable, Achievable, Realistic, and Time-related. These objectives should reflect the organizational goals and be specific to each employee. The reason for using the SMART approach is that we need to be able to verify if the objectives were achieved later.

After some interaction with a manager, the objectives should be approved by both the employee and manager. At the end of the performance cycle, the objectives will be reviewed, and the manager will then decide to which extent each employee has achieved their personal objectives.

The system is not perfect and there are many challenges. How do you make sure the employees define objectives that are “hard enough” to reach? How do you evaluate an employee if an objective is missed for reasons out of his or her control? I will come back to this and share some ideas later.

For now I’ll discuss another major challenge: How do you manage all the workflow of approvals required to incent the employees based on their performance?

Traditionally, this is done using spreadsheets. The employee e-mails a spreadsheet to their manager. The manager reviews and e-mail it back to the employee. The employee makes some changes and e-mail it back to the manager. The manager is satisfied and e-mails the spreadsheet to a senior manager. The senior manager approves the objectives and e-mails back the approved spreadsheet to the manager. At the end of the year, the same process takes place again to distribute performance bonuses to each employee. That’s a lot of e-mails going back and forth, and many companies are struggling to centralize all this objective and performance information. And that’s not mentioning the difficulties to track the trends in the employees’ performance, perform other analysis by strategic objective, by department, etc, and to record information for audit purposes. These are all good examples of why having a solid MBO solution to facilitate this workflow is important.

In the following weeks, I will review many leading MBO solutions and demonstrate the benefits of using them instead of using spreadsheets.

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