Establishing—and sticking to—clear and explicit performance metrics is the best way to encourage accountability. That is, select performance measures that will let you know unambiguously whether a team member has achieved his or her goals.
The Incentive Equation
The incentive equation defines the mix of incentives that you will use to motivate desired performance. Here are the basic formulas:
A. Total reward = non-monetary reward + monetary reward
The relative sizes of nonmonetary and monetary reward depend on (1) the availability of nonmonetary rewards such as advancement and recognition, and (2) their perceived importance to the people involved.
B. Monetary Reward = fixed compensation + performance-based compensation
The relative sizes of fixed and performance-based compensation depend on (1) the extent of observability and measurability of peoples’ contributions, and (2) the time lag between performance and results. The lower the observability or measurability of contributions and longer the time lag, the more you should rely on fixed compensation.
C. Performance-based compensation = individual performance-based compensation + group performance-based compensation
The relative sizes of individual and group-based performance compensation depend on the extent of interdependence of contributions. If superior performance comes from the sum of independent efforts, then individual performance should be rewarded (for example, in a sales group). If group cooperation and integration is critical, then group-based incentives should get more weight (for example, in a new-product development team). Note that there may be several levels of group-based incentives—team, unit, and company as a whole.
Avoid ambiguously defined goals, such as “Improve sales” or “Decrease product development time.” Instead, define goals in terms that can be quantified. For instance, “Increase sales of product X by 15 to 30 percent over the fourth quarter of this year,” or “Decrease development time on product line Y from 12 months to six months within the next two years.”