Strategy Execution Module 12: Aligning Performance Goals and Incentives

This module reading explains how managers use performance goals and incentives to ensure that employee actions align with the overall business strategy of the organization. The module begins by discussing how managers use goals to communicate business strategy, the importance of targets and benchmarks for motivation, and the multiple purposes for which goals are used, including planning, coordination, motivation, and evaluation. Three tests are offered to evaluate the effectiveness of performance goals: alignment with strategy, measurability, and linkage to economic value creation. The discussion then turns to intrinsic and extrinsic rewards and examines short-term incentives such as bonuses and recognition as well as long-term incentives such as deferred payments and stock options. Because performance goals and incentives define success (and failure) for individuals, this module also explores the interaction of goals and incentives with human behavior. While this module is designed to be used alone, it is part of the Strategy Execution series. Taken together, the series forms a complete course that teaches the latest techniques for using performance measurement and control systems to implement strategy. Modules 1 - 4 set out the foundations for strategy implementation. Modules 5 - 10 teach quantitative tools for performance measurement and control. Modules 11 - 15 illustrate the use of these techniques by managers to achieve profit goals and strategies.