Management tools are designed to support, standardize and implement management processes across the company. They are therefore used to manage and evaluate larger units according to the same criteria.

Target system

The Balanced Scorecard (BSC), which has been highly praised over the last 20 years, has proven itself as a target-setting and control instrument at the top management level. However, many companies have moved away from it because the effort involved – especially at the subsequent levels – is enormous and many targets at employee level were perceived as banal. The complexity of the goals made it necessary to map these target systems on an IT application so that an overview was still possible. Soft or behavioral goals, however, are more difficult to measure and were thus left out. Operationalized goals were then simply broken down and no longer really agreed upon cooperatively. This made the system anonymous and actual commitment smaller. However, some of the BSC’s ideas are very important, such as the requirement for metrics for “soft goals” too, the alignment of all goals in the company with strategic intentions and the equal importance of operational and strategic goals. In practice, this makes it possible to derive an integral but streamlined system that can be used by company management down to the level of clerks.

Each employee should therefore receive at least one goal from each of the three areas: operational goal (day-to-day business), strategic goal and personal goal (development). Whether the strategic goal is more market-oriented (improving customer proximity) or serves internal efficiency (process optimization) is ultimately unimportant and depends on the employee’s position and tasks.

It is also advisable not to simply suggest goals to employees, but to disclose to them the goals of their superiors and the strategy of the company or strategic business unit and to ask them to develop suggestions as to how they can contribute to these overarching goals. These suggestions are then discussed, compared with the existing specifications and agreed upon.

Performance appraisal

It is actually the employees’ right to know to what extent they are fulfilling the expectations of their superiors. Employee appraisals are therefore a useful means of maintaining the boss-employee relationship and an important management tool.

However, two conditions often cause annual reviews to degenerate into token exercises:

Firstly, many companies include soft behavioural criteria in the assessment, which have no or inaccurate assessment criteria and are therefore perceived as subjective by those being assessed. This then leads either to disappointment during the interview if the superior tries to address critical points or to a creeping, annual “ever-better assessment” if the conflict is avoided. The problem is exacerbated if remuneration components are also tied to this assessment.

Secondly, in order to curb this inflation of “ever-better assessments”, many companies have guidelines on how high the average assessment of all employees in the team can be. This leads to the situation where superiors then tell employees “I would like to give you a better assessment, but I’m not allowed to”, thus destroying the credibility of the system.

On the one hand, performance appraisal discussions can be significantly improved through clearer metrics for behavioral goals and, above all, through appropriate  training of superiors  .

Variable remuneration

The usefulness of performance-related, variable remuneration is being questioned more than ever by social psychologists. Nevertheless, it is indispensable in today’s management. Fixed salaries are considered old-fashioned and stubborn. Young employees do not want to wait several years before they can move up to a higher salary class. But the negative developments, particularly in the financial services sector, also show the dangers of this management tool. Social psychological findings have shown that bonuses in addition to the fixed salary only lead to increased performance up to a level of 4%. (Osterloh, 2003) But the fact is that companies that have incentive systems that relate to the strategic direction of the company are on average more successful. (Horváth&Partner, 2005) From this apparent contradiction, two important prerequisites for a successful remuneration system can be derived:

Firstly, even small variable components are sufficient to align performance behavior with specific goals (output orientation). Fluctuations are reduced and with them the risk of exorbitant salaries being achieved or, in bad years, salaries falling below the level of the employees’ personal cost structure. Output-oriented goals also make it easier to implement strategic intentions in the company.

Secondly, it is crucial that the rewarded objectives support these strategic intentions (bridge building in the Roman Empire) and do not pervert them (cobra effect).

In India, during the British colonial rule, a bounty was offered for captured poisonous snakes in order to curb the plague. As a result, poisonous snakes were bred and handed over. When this was noticed and the payments stopped, all the breeding snakes were released. There were now far more snakes than at the beginning of the campaign!

In ancient Rome, the engineer of a bridge had to stand under the arch when it was opened.

The art of defining variable pay systems is to align intention and incentive!