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Compensation Insights

5 Tips for Setting KPIs to Measure Success of a Compensation Consulting Project

KPIs.jpgIn a previous post, we talked about using SMART objectives for compensation consulting projects and the importance of Key Performance Indicators, or KPIs.

But how do you identify the correct KPIs that will serve as Indicators of Success, a measurement of the success of your project, while it’s in progress?

First, ask yourself how you measure success. Do you base it on financials? That is backward looking. Financials may tell you how many widgets you sold but not the strength of your customer loyalty, which will go far toward defining your future success.

Remember, everything must tie back to and support your business strategy, including your compensation program. You have identified your situation and determined you need help from a compensation consulting firm. You have outlined your SMART objectives. You're ready to begin the project. But a compensation project is not beneficial without measurements, or KPIs. Without these, you cannot tie the project back to your business strategy.

Setting KPIs for your compensation project

So how do you establish the KPIs that will measure your project? Start with your goals. Are you trying to achieve quantifiable goals, such as increased sales, or more intangible ones, such as improving relationships with your customers?

Then consider these five KPI tips:

  1. Include quantitative and qualitative indicators of success – for instance, an increase in the number of calls taken per day in your call center and an improvement in customer satisfaction following each call.
  2. Establish at least one indicator of success for each objective.
  3. Choose indicators that don't bias the results. Beware of the "we've always done it that way" mentality and a resistance to change on the part of managers.
  4. Incorporate short-term indicators to assess progress. Don't wait until the project is complete to determine if you succeeded in moving toward your goals.
  5. Use leading indicators rather than only lagging indicators. The number of widgets produced in your factory is a lagging indicator. The amount of lost time due to employee absence is a leading indicator, as it impacts production. (Such a leading indicator might lead to a conclusion that an incentive plan is needed.)

Before starting your compensation project, ensure your KPIs are appropriate by vetting them with the CRAVE checklist – Concrete, Reliable, Available, Valid, Engaging. If they pass the CRAVE check, you are ready to begin. 

THE CRAVE CHECKLIST

Concrete

Can it be measured for real and not just a hypothesis, how specific?

Reliable

Is this a one-time action/indication or does it come up with the same answers/results each time?

Available

This is something already tracked more as a proxy for the desired information. Is it in the “system” already to be used?

Valid

Does it provide the sense of direction where you want to go; is it the right data source; does it look just beyond the obvious indication to test the desired outcome?

Engaging

Is there real action as a result of the project which all parties can see; does it help connect participants with the overall objective?

 

Get CRAVE-worthy KPIs

At D.G. McDermott we help our clients identify the most effective KPIs for their compensation consulting projects. If you’re ready to get started on a compensation program for your company, contact us at dm@dgm.com.

Tags: business strategy, compensation planning insights, designing compensation systems