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4 Approaches to Successful Employee Goal Setting

Employee goal setting can be a powerful driver for company performance — but only if you do it the right way.

Recent research by Gartner found that employee performance increased by 22% when companies added goal setting to their performance management systems — provided that employee goals were aligned with business priorities, changing organizational needs, and employees’ own values and accountability.

In this article, we’ll explore different employee goal-setting approaches to help you evaluate which method will best suit your company.

What Is Employee Goal Setting?

Employee goal setting is the process of identifying and measuring objectives on an individual level. These objectives form the foundation of an effective performance management process.

Common examples of employee goals include:

Role-related goals pertaining to the employee’s job description, such as sales targets for sales development reps or qualified leads targets for demand generation professionals

Developmental goals associated with employees’ learning and development progress, such as successfully completing a leadership training certification

Behavioral goals relating to the organization’s previously defined knowledge, skills, and behavior (KSB) framework.

Benefits of Employee Goal Setting

Since “management by objectives” was first introduced by management consultant Peter Drucker way back in 1954, setting goals has been a core practice for many companies. In fact, 95% of today’s businesses report that their employees set goals for themselves and their teams. Advantages of employee goal setting include:

Increased employee performance

Research consistently finds a strong correlation between goal setting and employee outcomes. Employees with clear goals report significantly higher levels of job satisfaction, motivation, and engagement, and are assessed as having higher performance than those with unclear goals or no goals.

Heightened employee job satisfaction and retention

Companies confronting the “Great Resignation” may want to take a closer look at their approach to employee goal setting. A recent study published in the International Journal of Public Sector Management found that goal setting increased employee job satisfaction, thereby improving retention rates.

Improved alignment between employees and organizations

Research by the management consultancy LSA Global found that highly aligned organizations — those in which employees feel they are working toward the same objectives and share the same overall mission as their employers — are 72% more profitable and grow their revenue 58% faster than their unaligned peers.

Challenges of Goal Setting

While goal setting is a fundamental component of effective performance management, setting the right goals can be tricky. When working to create aligned, motivating goals with employees, organizations must:

Identify goals that will stand the test of time

Job skills are accelerating at a dramatic pace, with IBM reporting that many professional skills have a “half-life” of just 2.5 years. Consequently, managers and employees must identify goals that relate to “durable” rather than “perishable” skills — in other words, a goal like “Improve communication skills” or “Develop an understanding of design thinking” is likely to remain relevant for longer than “Master the use of internal tool X,” given that X is likely to become redundant sooner rather than later.

Find the balance between ambition and realism

According to the Harvard Business Review, goals that are too easy or too hard tend to be demotivating. Finding a balance requires a goal-setting process that combines ambitious end goals — also known as stretch goals — with short-term, easily achievable milestones that encourage employees to celebrate small wins.

Acknowledge teamwork

Although we work in teams, we typically set goals at an individual level. According to the 2021 Gartner Employee Performance Management Survey, less than 10% of organizations involve peers in goal setting, and — even though teamwork is at the heart of most high-performing organizations — just 15% involve teams. With this in mind, effective employee goal setting must include alignment between the individual and the team, as well as between the individual and the organization.

Types of Employee Goal Setting

Types of employee goal setting include:

Employees choosing their own goals based on their personal career ambitions and a self-assessment of their strengths and weaknesses
Employees and managers working together to develop goals based on the manager’s assessment of the employee’s performance and the team’s priorities
The organization creating a performance management system that cascades down from core business goals to team goals and finally to individual employee goals

Some of the most common employee goal-setting methods include objectives and key results (OKR), management by objectives (MBO), the SMART framework, and the FAST framework. We’ll take a look at these in more detail next.

OKR goal setting

Popularized by Google’s John Doerr, the OKR goal-setting process involves identifying an Objective (“What I want to accomplish”) accompanied by a Key Result (“How I’m going to accomplish it”). At the organizational level, there will typically only be three to five Objectives and their accompanying Key Results in progress at a time. Team OKRs directly contribute to company OKRs, and companies may decide to add individual OKRs that feed up to the team level.

Examples of OKR goals:

Is it right for your organization?

OKRs are a good fit if you want to encourage ambitious goal setting. Unlike many other frameworks, OKRs encourage employees to identify objectives that they don’t expect to completely achieve. If you accomplish 60% of an OKR, that’s perceived as a very positive outcome.

However, some companies find the Key Result aspect too prescriptive — they prefer to set the top-level objectives, then encourage teams and individuals to identify and implement their own preferred approaches to achieve the objectives.

MBO goal setting

MBO goal setting has been around since the ‘50s and is still popular today. In the MBO approach, business leaders set the top-level organizational objectives — usually on an annual basis. These goals are then cascaded down to the team level, meaning each team sets targets based on the leaders’ overall objectives. Managers then work with employees to identify individual goals that will help achieve the team targets.

Examples of MBO goals:

Increase product sales for Product X by 15%
Increase market share in Region Y to 75%

Is it right for your organization?

MBOs are the right fit if organizational alignment is a top priority — and if top-down goal setting is the best fit for your company culture. However, without the right performance management platform in place, MBOs can generate a heavy load of paperwork and may generate unhealthy competition among employees aiming at the same targets.

SMART goal setting

SMART goals are Specific, Measurable, Attainable, Relevant, and Time-bound. Suitable for both employee-driven goal setting and manager-employee collaborative goal setting, the SMART framework is a popular and effective way of transforming lofty aspirations into real, concrete steps. It is frequently recommended as the foundation of a solid performance management program.

Example of a SMART employee goal:

Design, create, and publish one new landing page for Product X before May 30, with more than 200 unique daily page views and a conversion rate of 5.5%.

Is it right for your organization?

SMART goals are popular for myriad reasons — they encourage employees to set practical goals, they support organizational alignment, and they’re easy for employees and managers to measure and monitor. However, employees may be tempted to set overly easy goals, especially if achieving these goals is tied to compensation.

FAST goal setting

Researchers at MIT’s Sloan School of Business have stated that “FAST beats SMART” when it comes to employee goal setting, arguing that SMART goals “undervalue ambition, focus narrowly on individual performance, and ignore the importance of discussing goals throughout the year.” In lieu of adhering to the SMART framework, they propose that employee performance goals should be Frequently discussed, Ambitious, Specific, and Transparent.

Example of a FAST employee goal:

FAST goals can be expressed as OKRs; the difference is in how they are set, communicated, and shared. The MIT researchers give the example of “Attract 1 million unique visitors per month to the company’s website,” which is an Objective that may have several Key Results — for instance, “Gain 100,000 followers on Twitter” or “Restructure website architecture to optimize for search.” These Key Results will change as they are accomplished, or if discussions during frequent reviews lead employees to rethink their goals.

Is it right for your organization?

FAST goal setting combines many of the best aspects of the OKR and SMART approaches. FAST goals are both ambitious and measurable, allowing for individual employee input and top-down alignment. However, FAST may not be the right fit for your organization if you’re hoping to discourage inter-employee competition, as the transparency of FAST goals is explicitly designed to cultivate peer pressure.

Example of a FAST employee goal:

Is it right for your organization?

3 Tips for Effective Employee Goal Setting

Regardless of which employee goal-setting framework you choose, all performance management systems should consider the following best practices:

1. Align your purpose, not just your objectives

It’s simply common sense that an organization works best when everyone is pulling in the same direction. However, it’s also important to establish clear alignment between your employees’ values and the company’s mission and purpose.

A survey by McKinsey found that today’s post-pandemic employees are seeking purpose at work — but often fail to find it. In fact, just 18% of survey respondents reported finding as much purpose in their work as they wanted.

2. Involve employees and managers

Whether you decide on a top-down or bottom-up goal-setting framework, you’ll need high levels of involvement from both managers and employees.

A recent study found that employees who were proactively involved in setting and achieving their goals were more motivated and more likely to perform well at work. Those with managers who proactively worked toward goals were more likely to be proactive themselves, although micromanagement tended to backfire.

3 Tips for Effective Employee Goal Setting

3. Monitor, recognize, and reward

Make sure to combine goal setting with continuous feedback to help employees remain on target and keep their contribution to the overall company mission front of mind. This will require employees’ efforts to be recognized and praised by their managers, and their successful accomplishment of major objectives to be rewarded.

In fact, research by the team at Great Place to Work found that employee recognition is key to improving performance — people who feel recognized at work are more than twice as likely to feel willing to put in extra effort.

The Right Goal-Setting Approach Can Transform Employee Performance

The key to goal setting is to identify your organizational priorities and challenges, then build a performance management system that will help deliver the culture you envision. Clear goals are fundamental to your employees’ success — whether you select a top-down, cascading approach or an employee-driven, bottom-up framework.

To find out how SumTotal makes it simple to balance and align individual and organizational goals, request a personalized demo.

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