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All Executives should be on Fixed Term Performance Contracts

Editorial Team
08/03/2017 1:12 PM

The challenges that the business community is facing requires maximum cooperation from every stakeholder: employees, managers, executive and Board of Directors of the organisation. As a result, company need to take an objective assessment of how they link performance to rewards. This should start with executives, before being effected down to the lower levels of management and staff.
We often talk about performance measurement and appraisal but in most organisations executives do not get appraised at all. You have organisations that have become perennial poor performers without consequence to the Executives leading that organisation. This problem starts with the Board of Directors, as they rarely put the executive team under the performance microscope. I believe this can be done by implementing fixed term performance contracts for their Executives.
If organisations have any hope of building performance culture, boards of directors need to move with speed to implement credible performance measurement systems. If the CEO and other executives are not appraised like everybody else, why should the other levels of staff bother about performance measurement and appraisal? The message that you are sending to your staff members is that performance is not important. It also shows that you are only doing it because there is someone in the human resources department who is supposed to be having that on their job description. Issues of performance are not for the human resources department to lead. The CEO should be the lead person on all issues to do with performance. Performance measurement and appraisal will only work if the CEO is driving it.
After designing an objective performance measurement system that is driven by your strategy, it is very important to have performance contracts for all your executives. Performance contracts with clearly defined goals will ensure that your executives keep focus on the important business goals. The performance contracts should clearly spell out the consequence of achieving and not achieving the set goals. We need to take note of the fact that performance goals need to be agreed upon by the superior and the subordinate. There should be room for changing the targets should circumstances beyond the control of the subordinate change. As mentioned above, the contract should have goals that cover major aspects of the business not just financial targets. Also, make sure that all the goals in the contracts are within the control of the person charged with achieving them.
Performance contracts should not be designed to fire people when they fail to achieve the goals. They are designed to make the organisation achieve its set goals and keep the managers focused. They can also assist the organisation in making sure that those who cannot perform consistently will “fire themselves” because they will be exposed and eventually they will have no option but to leave.
The performance of executives should be discussed openly with all the executives. Where the achievement of set goals depends on the support of other departments or business units, service level agreements should be formulated and agreed upon by the concerned departments. This can be supported by co-ownership of important goals by the department heads concerned. This will ensure mutual accountability and maximum cooperation.
Executives in both private and public sector organisations should be on fixed term performance contracts to promote achievement of business goals. Currently some Executives are taking advantage of the fact that they are not held accountable for their performance, and that they are permanent employees. There is so much self interest that is driving decisions in organisations which is to the detriment of these organisations. Employees are made to suffer in most cases for decisions that they did not contribute to. The only way to hold executives accountable is to make sure they have performance contracts and if an Executive does not perform their contract should not be renewed. If they achieve the set goals they must be given incentives to keep them focused. Without incentives these initiatives are likely to draw resentment from both the poor performers and good performers. The first question that people ask themselves when such projects are introduced is” what’s I it for me?” If they see no benefit for themselves first they will resist such initiatives.
Boards of directors need to start acknowledging that executives and all staff members should be paid for the value generated for the shareholders and other stakeholders. Paying people based on their true value and contribution to the business is the only sure way to achieve sustainable growth.
Implementing performance contracts should start with the board of directors together with the CEO. The CEO will then effect his goals in the performance contract to other members of the executive team. If you can get the top team focused, you are almost assured that the impact will trickle down the different levels of the organisation to the benefit of the organisation and its stakeholders.
Memory Nguwi is the Managing Consultant of Industrial Psychology Consultants (Pvt) Ltd a management and human resources consulting firm. Phone 481946-48/481950/2900276/2900966 or email: mnguwi@ipcconsultants.com or visit our website at www.ipcconsultants.com

Editorial Team

This article was written by one of the consultants at IPC

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