How to set challenging but realistic goals for employees

Goals are the heart of any pay-for-performance system. They set the standard against which employees’ progress is measured—and on which bonuses and raises are based.

But goal setting can be a tightrope act. Set the bar too low and you end up with unmotivated, unproductive employees. Set it too high and you’ll create frustration—and the possibility that employees will behave unethically or counterproductively to achieve the goal.

The worst-case scenario: Performance goals are so misaligned with business needs that they endanger the organization or its customers.

To establish goals that improve organizational performance, ask these eight questions, developed by the Harvard Business School:

1. Are the goals too specific? In the race to meet a specific goal, Ford created a car that had serious flaws—the Pinto. Be sure your goals embrace the overall components for success, in terms of both quantity and quality.

2. Are the goals too challenging? Offer training if necessary. Don’t punish failure to reach unreasonable goals.

3. Who sets the goals? Get the employees’ input first. People who set their own goals are more committed.

4. Is the time horizon appropriate or does it foster “short-termism”? Are quarterly results really more relevant than year-over-year achievements?

5. What’s the acceptable risk? Will one employee’s achievement undermine overall success?

6. How might the goals promote corrupt behavior? When Sears set challenging sales goals of $147 per hour for its auto repair staff, it prompted employees to overcharge for work. Set up redundant safeguards to keep employees from rationalizing unethical behavior.

7. Can goals be tailored to individual abilities? Set goals that account for individual variation.

8. How will goals affect culture? Is cooperation essential? Set team goals.