The Effectiveness of Tiered Goals Versus Stretch Goals

Abstract

Goals are an important aspect of any organization's performance measurement system. Yet setting appropriate goals to motivate individuals in the organization is not a trivial task. In this study we investigate an alternative to both single stretch goals and individual goals in the form of tiered goal systems. Tiered goals have received increased practitioner attention with companies such as BI® using goal bands in their GoalQuestTM product. While prior academic literature has pointed to this approach as viable (Latham and Locke 1991) there has been no empirical testing of either its effectiveness over time or its effectiveness against other established goal setting approaches such as the single stretch goal. In this study we investigate not only the performance outcome but also some of the underlying cognitive processes in terms of goal commitment, goal attractiveness and self-efficacy. Our results show an initial significant increase in performance when the tiered goal system is introduced, which is subsequently reversed as individuals find the ratcheting up of performance goals unacceptable and reduce their commitment to the higher goal. We also find that contrary to expectations that compared to a single stretch goal, the tiered goal neither resulted in significant initial nor long term differences as individuals in the stretch goal persisted with the goal over time.

Note: The authors wish to thank the Canadian Institute of Chartered Accounting for their generosity of granting $9,995 to support this research. We also wish to thank the Canadian Academic Accounting Asociation which manages the approval process for this grant.

Keywords: stretch goals, incentives