A goal-setting technique designed to provide both predictability as well as generate excitement and upside potential is the creation of commit and stretch goals. The commit goal is a promise of what will be delivered. It's nonnegotiable and missing it has big consequences. The stretch goal is something for the team to aspire to, and if they reach it, the rewards can be large.
- A goal setting technique designed to provide predictability and generate excitement and upside potential is setting commit and stretch goals. The commit goal is a promise of what will be delivered. It's non-negotiable. Missing it has big consequences. The stretch goal is something for the team to aspire to. If they reach it, the rewards can be really large. Let me walk through an example of what this can look like. Let's say we have a corporate profit target of $150 million.
Each business unit is given a portion of that target. And when you add those up, it's 155 million because we want to have a hedge in this situation. Those are commit numbers. One business unit has a $40 million commit and and a $45 million stretch. Let's say at the end of the year they come in at $41 million. Well, they get 20% of the extra bonus that's available because they got one million of the five million possible. Let's say another business unit had a goal of $50 million as their commit.
They come in at 45 million. It's a bad year. No bonuses and poor reviews are going to follow in the performance management process. Another business unit has a $27 million commit and a $30 million stretch. They come in at $32 million through some really good luck and a lot of hard work. That team should get 166% of the possible bonus if it's an uncapped bonus structure. The final business unit has a commit of $38 million and a stretch of 45 million.
They come in at 40 million and they get a 28% of the available bonus. The corporate result of this entire goal-setting structure is coming in at 158 million on a corporate commit of 155 from this business unit. When you look at setting these commits and these stretches, it's pretty clear that the team knows what they have to hit with the commit. They understand what the consequences are. Having the stretch gives them that incentive to work even harder and deliver above and beyond.
One thing I invite you to do is to create a commit and a stretch for all major metrics for your organization. Ensure there are consequences for missing the commit. Make sure there are rewards commensurate with hitting the stretch. By laying out these goals and letting people know broadly across the organization what the commit and stretch are, as well as the consequences and rewards, you can drive exactly the behaviors you want to hit your higher level goals.
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- Set corporate and business unit goals.
- Define driver metrics.
- Explain the concept of supporting goals.
- Identify benefits of tying goals to strategy and incentives.
- List ways to troubleshoot and communicate goals.
- Describe how to hold others accountable and avoid pitfalls.