Here’s why your company shouldn’t set performance goals too high
Having ambitious corporate incentive schemes and performance goals might seem like a fail-safe strategy for getting the very best out of employees.
However, they can actually cause anxious employees to lie about outcomes and result in a negative impact on productivity, according to the University of Sydney Business School’s Professor of Accounting, Wai Fong Chua.
For example, consider how Nokia suffered financially because of the fear that it imposed amongst middle and senior managers.
“Shared fear was so strong amongst Nokia’s middle managers that they withheld important information about the viability of its technology from senior managers,” said Chua.
“The company suffered significant losses as a result and was forced to exit the smartphone market.”
Moreover, Chua’s research relating to the Australian subsidiary of a global computer company looked at the need to better understand ‘affective technologies’.
This includes processes, information systems, and performance/financial goals that have an emotional impact and economic consequences.
“Take for example, a billion dollar revenue target that is to be achieved within 18 months, this tends to produce an affective outcome,” she said.
“It could be anxiety, it could be fear, it could be excitement, it could be all of these things. And that, in turn, affects the way people work in an organisation.”
Chua believes there is considerable fear and anxiety in today’s corporations, particularly those facing financial hardships.
“When corporate distress is not well handled it can have quite adverse consequences,” said Chua.
She added that financial managers today play a key role in designing performance management systems.
“We’re fundamentally interested in ensuring that the systems we design and the goals that are set enable people to develop their potential and achieve to the best of their ability.
“Stretch goals can motivate staff. But, when tied to incentive schemes that operate in unsupportive corporate cultures, this can prompt fraud,” said Chua.
Indeed, investigations are currently underway into the incentive schemes at the Wells Fargo bank in the United States. Approximately 5000 employees are believed to have created fictitious customers in order to meet or exceed their performance targets.
Chua concluded that companies “need to be aware of levels of anxiety and fear and enable folks to discuss processes and goals without being so afraid that they fabricate an answer”.
“Organisations are emotional arenas, not just economic entities,” she said.
However, they can actually cause anxious employees to lie about outcomes and result in a negative impact on productivity, according to the University of Sydney Business School’s Professor of Accounting, Wai Fong Chua.
For example, consider how Nokia suffered financially because of the fear that it imposed amongst middle and senior managers.
“Shared fear was so strong amongst Nokia’s middle managers that they withheld important information about the viability of its technology from senior managers,” said Chua.
“The company suffered significant losses as a result and was forced to exit the smartphone market.”
Moreover, Chua’s research relating to the Australian subsidiary of a global computer company looked at the need to better understand ‘affective technologies’.
This includes processes, information systems, and performance/financial goals that have an emotional impact and economic consequences.
“Take for example, a billion dollar revenue target that is to be achieved within 18 months, this tends to produce an affective outcome,” she said.
“It could be anxiety, it could be fear, it could be excitement, it could be all of these things. And that, in turn, affects the way people work in an organisation.”
Chua believes there is considerable fear and anxiety in today’s corporations, particularly those facing financial hardships.
“When corporate distress is not well handled it can have quite adverse consequences,” said Chua.
She added that financial managers today play a key role in designing performance management systems.
“We’re fundamentally interested in ensuring that the systems we design and the goals that are set enable people to develop their potential and achieve to the best of their ability.
“Stretch goals can motivate staff. But, when tied to incentive schemes that operate in unsupportive corporate cultures, this can prompt fraud,” said Chua.
Indeed, investigations are currently underway into the incentive schemes at the Wells Fargo bank in the United States. Approximately 5000 employees are believed to have created fictitious customers in order to meet or exceed their performance targets.
Chua concluded that companies “need to be aware of levels of anxiety and fear and enable folks to discuss processes and goals without being so afraid that they fabricate an answer”.
“Organisations are emotional arenas, not just economic entities,” she said.
