Aligning Marketing Goals and Marketing Performance by Ken Bernhardt Regents' Professor of Marketing and Assistant Dean for Corporate Relations  Robinson College of Business, Georgia State University Atlanta Business Chronicle - November 24, 2006 Many professional athletes have in their contracts, in addition to their salaries, various incentive bonuses for such things as making the All-Star team, having a batting average over .300 or winning 20 games, pitching over 200 innings or having over 400 at-bats. There are also large bonuses for winning the World Series or Super Bowl. The objective of these incentive plans is to motivate athletes and reward them for performance that is aligned with team goals.  Sales people also often have as part of their total compensation incentive pay based on performance.  Typically, this consists of commissions based on the sales generated and/or bonuses based on achieved sales goals.  Many professional marketers, however, receive only a base salary.  In other cases, the only incentive compensation is a stock option, which may be arbitrarily determined. Two clear trends in business today are the increasing needs to develop metrics for assessing performance (e.g., balanced scorecards) and to holding managers accountable.   A number of studies have found that managers respond to incentive systems.  The extent of motivation is a function of a) their perception of the likelihood that their effort will affect the performance, b) the extent to which their performance will lead to a reward, and c) how much the individual wants the reward.  In other words, incentive systems work to the extent that they align the individual's goals with those of organization. An example of how this strategy works well is the system Chick-fil-A uses to compensate their restaurant operators and corporate staff.  In this case, all expenses (including a percentage off the top for Chick-fil-A as compensation for corporate support) are subtracted from sales to arrive at a profit number that is split 50-50 between the operator and Chick-fil-A.  Thus, the operator's compensation is totally based on profits, with the managers' and corporate goals in clear alignment.  But Chick-fil-A takes the system one step further by tying the compensation of home-office personnel who have an impact on operators (such as field-marketing and operations staff and senior management) directly to operators' compensation.  Specifically, a portion of staff compensation is a function of the profitability of the restaurants. The result is a staff that is highly motivated to promote the restaurants'profitability.  This has a major impact on corporate culture and has contributed to the firm's sterling performance year after year.   So what are some best practices concerning use of performance incentives? Here are some that have been gleaned from studying a number of firms: Set the Right Goals.  For the system to work, incentive compensation should be closely tied to the organization's goals.  This can be a single thing as is typical for sales people (exceeding a quota) or CEOs (increasing shareholder value).  Or it may hinge on multiple criteria that include a combination of individual performance measures and unit or corporate performance measures.  For example, an Atlanta Fortune 500 firm changed their plan from one based solely on a percentage of corporate profits to one with five or six more specific goals to be achieved in the upcoming year.  They have included revenue, earnings, and volume-growth targets plus two or three even more narrowly defined goals that the corporation has identified for the coming year.  Another Atlanta Fortune 500 company uses a combination of individual quantifiable goals, unit (business unit or region) goals, and corporate goals. Examples of other specific performance measures that firms use include customer satisfaction, employee satisfaction, EBITDA (earnings before interest, taxes, depreciation and amortization), market share, mentoring and leadership development, strength of the brand, expense reduction, development of new products, and increase in ease of doing business with the firm.  The well chosen goals can have a big impact on behavior.  For example, sales people whose incentive compensation is based on gross margins instead of total sales generated will typically place much more effort on more profitable products or customers. Select the Right Rewards. Offering rewards to which employees don't attach value is not an efficient use of resources and is unlikely to promote motivation.  Employee participation in designing the system can have a big payoff. Balance the Short Term and the Long Term. An incentive compensation system should be designed to attract quality people, motivate them to achieve goals, and retain them.  Those that work best pay attention to the short and the long terms.  For example, one of the Fortune 500 companies referred to above pays out half of the incentive pay in restricted stock units that vest over 5 years.  People who leave before that will leave money on the table, creating a great incentive to stay.  Another firm grants options that vest in three years and increase or decrease based on how the company does relative to a set of 10 industry competitors.  Goals Need to Be Challenging.  Goals must be sufficiently challenging to ensure that extra effort is required to achieve them.  Otherwise, the reward becomes an entitlement and the company loses the extra motivation potential. Recognition can be Almost as Important as Money.  Money isn't the only way to motivate people.  I am reminded of a colleague who had worked for Procter & Gamble before beginning his teaching career.  He had a block of wood on his desk that he claimed he earned by working about 150 extra hours over 90 days.  That's all he got, except for the sense of accomplishment and pats on the back that came with the wood "trophy," but it was enough to encourage him to do the extra work required to win it. Spot Rewards Can be Very Effective Motivators.  Short term goals and rewards can be effective in motivating people and they can be fun.  An example would be giving out movie tickets or small cash rewards for hitting short term targets (e.g., number of cars through the drive-thru window in the next hour).