Do stretch goals incentivize cheating and short-termism?

Edited excerpt from Charlie Munger’s comments at the Wesco 2000 Annual Meeting, quoted in The Tension Created By Stretch Goals:

There are two lines of thought. A whole bunch of management gurus say you need BHAGs — bold, hairy, audacious goals. That’s a technique of management, to give the troops a goal that looks unattainable and flog them heavily. According to that line of thought, you will do better chasing a BHAG than you will a reasonable objective.

Then there’s another group that says that if you make the goals unreasonable enough, human nature being what it is, people will cheat.

These two factors are at war. You don’t want the cheating, which is bad long term and bad for the people who are doing the cheating. However, you do want to maximize real performance.

What people generally do is give people the unreasonable goal and tell them, “You can’t cheat.” That is the American system in many places.

I’ve got no answer to that tension. Low goals do cause lower performance and high goals increase the percentage of cheating. Each organization has to find its own way.

(1) In a startup like Seeking Alpha, I’m less concerned that managers will cheat (ie. be dishonest) than optimize for short term growth at the expense of medium term growth. However, if the manager knows they’ll stay in their role for the medium term, is that really a risk?
(2) “Low goals do cause lower performance.” See (i) Don’t set goals based on what you think you can achieve, (ii) Think big, (iii) Ensuring you’re sufficiently ambitious, and (iv) Set stretch goals.
(3) Setting ambitious goals isn’t just about performance, but about vision and aspiration too. See Lessons from Jeff Bezos: Set “audacious and inspirational” goals.

2 thoughts on “Do stretch goals incentivize cheating and short-termism?

  1. This is always a challenge. A few more things to add.
    1) If you make the goal too much of a BHAG (such that everyone thinks it is impossible) you will end up with people giving up entirely which is worse than setting a low goal.
    2) Intrinsic motivators can often be better than monetary motivators (especially for non-sales forces). If you use an intrinsic motivator (i.e. how many lives you’d be saving / people you’d be helping) people tend to be much less likely to cheat.
    3) One other way to help mitigate short term vs long term is to give the BHAG context and present it as a step terms of the overall goal/vision. (I.e. In 5 years we our goal is to be helping 100M people. We will get there but we need to be ambitious every step of the way, including this BHAG etc….). If people know that this is a step towards a long term vision (and they are not purely driven by financial incentives) managers will be less likely to make the short term goal at the expense of the long term.

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