business-goal

How to use the goal-setting process to achieve great performance

Article originally published in the American City Business Journals on July 9, 2019

Setting an organization’s annual financial goals has importance beyond financial considerations. If the probability of achieving the financial goals is low and in most years the goals are not achieved, employee morale suffers and the ongoing funding of growth initiatives critical to the long-term success of the company is jeopardized.

I have written articles on this subject, in January 2015 and in December 2018. This article shares some additional perspectives on the goal-setting process.

Setting goals at PQ Corporation as a business unit leader, then as the company’s CEO and later as a board member of other companies approving the financial goals of their CEOs, I have developed a perspective on the annual goal-setting process. Done effectively, goal setting drives execution and individual, team and organizational performance.

As a business unit leader, I worked for CEOs who set stretch financial goals for the company. Upside potentials were not balanced against downside risks. These CEOs believed that actual performance with stretch goals would exceed the performance that would have been attained, had the goals been set more realistically.

However, since there was a relatively low probability of achievement, many employees did not take ownership in these goals, and most years the company fell short of achieving them. The board of directors held management accountable for achieving what they said they would achieve, and when performance fell short, the board was not happy.

After I was named CEO of PQ, I changed our annual financial goal-setting approach. Each business unit set goals that were reasonably attainable, based on strategies that provided a path toward achievement. However, I set the expectation that the financial goals should be exceeded by the greatest extent possible, and our employees should have fun doing so.

The higher the financial performance, the higher the bonus payment for that portion of the bonus tied to financial results. We were completely transparent by sharing with the employees the bonus pool formula, and they were energized as their results increased the size of the pool as well as their own possible bonus payment.

PQ business unit leaders occasionally wanted to build a reserve (i.e. commit to a lower earnings number) in their goals, if there were downside risks in their business plans not offset by upside potentials. I permitted them to do so. Adding up all the earnings of the business units, I would consider whether the corporate earnings goal was reasonably attainable. If not, I would build a president’s reserve into the company’s earnings goal. This is not common practice among many CEOs.

As the months passed, employees developed and executed strategies to exceed their goals. With this new approach, PQ’s earnings grew from $14 million (adjusted for an adverse material competitive situation) to $43 million over five years which included 9/11 and the severe recession of 2002.

After 2000, we never had a down quarter. As measured by revenue growth, earnings growth and return on assets, we moved from fourth quartile performance to first quartile performance, compared with 17 public peer companies within the chemical industry.

I did not achieve these earnings results — the men and women who operated our businesses around the world achieved them. I focused on tone at the top, corporate culture, ensuring we have the right people in senior leadership positions, and corporate strategy.

My approach as CEO of PQ — setting reasonably attainable goals that resulted in achieving earnings growth — was endorsed by Shark Tank star Kevin O’Leary. At the 2018 Disruptor 50 conference in Philadelphia, O’Leary discussed the factors that influenced the return of capital of the 37 companies within his venture portfolio. O’Leary said, “A study showed … 90 percent of the [cash] returns came from companies run by women.” Why?

O’Leary said, “Companies run by men hit their quarterly sales targets 65 percent of the time. … Women-led companies hit their targets 95 percent of the time. … If you are on a winning team in any sport, … you have a winning culture. Winning cultures have different metrics than just financial reward. Being part of a winning team is powerful. These [women-led] teams are constantly hitting their targets.”

O’Leary talks about his views in a March 2018 CNBC article headlined, “Shark Tank star Kevin O’Leary: Women-run businesses make me the most money – here’s why.”

In this article, O’Leary says, “If employees aren’t meeting their goals … frustration can lead to turnover, which is particularly costly for small operations. Women are better at avoiding this pitfall.

“When you meet your goals 95 percent of the time, you change the culture of your business. People feel they’re working in a winning organization. That’s why women are doing better in business — they keep their people. The staff are sticky. They want to work there because they’re hitting their goals. … You don’t have to reach for the stars, you want to win 95 percent of the time. That’s the secret sauce.”

The shareholders of the company don’t know what the annual financial goals of the company are and don’t care. They only care if the financial results exceed previous year’s results and exceed the investment returns of similar companies within the industry.

The goal-setting process is a means to an end — great performance. As leaders of our respective organizations, we should change our paradigms about goal setting. Financial goals should only be an intermediate target, and exceeded by the greatest extent possible, in an environment where employees are rewarded handsomely for doing so.


Stan Silverman is founder and CEO of Silverman Leadership. He is a speaker, advisor and nationally syndicated writer on leadership, entrepreneurship and corporate governance.Silverman earned a Bachelor of Science degree in chemical engineering and an MBA degree from Drexel University. He is also an alumnus of the Advanced Management Program at the Harvard Business School. He can be reached at Stan@SilvermanLeadership.com.

Advice from Shark Tank’s Kevin O’Leary: How to Drive Earnings Growth

Advice from Shark Tank’s Kevin O’Leary: How to Drive Earnings Growth

Article originally published in the American City Business Journals on December 4, 2018

One of the most important decisions of any leader is to set annual financial goals for their organization.

Should they set realistic goals, or tough stretch goals with a lower probability of achievement?

At the recent Disruptor 50 conference in Philadelphia, Shark Tank star Kevin O’Leary discussed the factors that influenced the return of capital of the 37 companies within in his venture portfolio. O’Leary said, “A study that showed … 90 percent of the [cash] returns came from companies run by women.” Why?

“Companies run by men hit their quarterly sales targets 65 percent of the time. … Women-led companies hit their targets 95 percent of the time. … If you are on a winning team in any sport, … you have a winning culture. Winning cultures have different metrics than just financial reward. Being part of a winning team is powerful. These [women-led] teams are constantly hitting their targets.”

O’Leary talks about his views in a March 2018 CNBC article headlined, “Shark Tank star Kevin O’Leary: Women-run businesses make me the most money — here’s why.”

In this article, O’Leary says, “If employees aren’t meeting their goals, that frustration can lead to turnover, which is particularly costly for small operations. Women are better at avoiding this pitfall.

“When you meet your goals 95 percent of the time, you change the culture of your business. People feel they’re working in a winning organization,” O’Leary says. “That’s why women are doing better in business — they keep their people. The staff are sticky. They want to work there because they’re hitting their goals. … You don’t have to reach for the stars, you want to win 95 percent of the time. That’s the secret sauce.”

In January 2015, I wrote an article on this subject headlined, “Setting credible and realistic goals can drive your financial performance.”

As a mid-level leader at my company, I lived through many years of CEOs setting what nearly every direct report felt was an unrealistically high annual corporate earnings goal that lacked strategies for achievement. As we started to lag behind the goal, costs were cut in a losing effort to try to close the performance gap between the actual result and the goal.

This was a debilitating exercise that took its toll on morale. Who were we kidding?

One of the keys to setting a goal is to ensure that upside potentials are properly balanced by down-side risks. We found that people are optimistic and often overstate upside potentials and understate downside risks. This contributes to missing the goal.

When I was named CEO of the company, we changed the paradigm of setting unrealistic goals. We set business unit and corporate earnings goals with a more realistic chance of achieving them. We were much more realistic in balancing the upside potential with the downside risk of possible adverse market events. The objective for everyone was not only to achieve our business unit and corporate earnings goals, but to blow through them to the greatest degree possible and have fun doing it.

The morale changed significantly within the company. Instead of a debilitating atmosphere in which we lagged our earnings goal during the year, employees took pleasure in tracking above goal each month and quarter.

I didn’t use O’Leary’s phrases “winning team” and “winning culture” to describe what we created, but thinking back, those are the phrases to describe the change in the organization at that time.

Our employee incentive program was not driven by achieving the earnings goal, but against achieving earnings growth as a calculated percentage above the three previous years’ earnings results, based upon what was appropriate for our industry. The higher the actual earnings achieved, the higher the bonuses and profit-sharing pool in which all employees participated.

With this approach, our earnings more than doubled from 1999 through 2004, a period that included 9/11 and the recession of 2002. This compared with flat earnings during the previous three years. We out-performed our peer group of 17 companies during this five-year period, and moved solidly into first quartile performance.

As the leader of your organization, consider how you set the annual earnings goal for your company. The stockholders don’t even know what the earnings goal for the company is and don’t care – they only care about year-over-year earnings growth. Reward your people for maximizing year-over-year earnings growth in an upbeat culture, and reward them handsomely for doing so.

Stan Silverman is founder and CEO of Silverman Leadership. He is a speaker, advisor and nationally syndicated writer on leadership, entrepreneurship and corporate governance. Silverman earned a Bachelor of Science degree in chemical engineering and an MBA degree from Drexel University. He is also an alumnus of the Advanced Management Program at the Harvard Business School. He can be reached at Stan@SilvermanLeadership.com.