Management By Objectives ? Bonus Program Guide

Exhibit 10.27

Management By Objectives – Bonus Program Guide

      1. What is MBO?
Management by objectives (MBO) is a systematic and organised approach that allows individuals and managers to focus on achievable goals and to attain the best possible results from available resources. MBO managers focus on the result, not the activity. They delegate tasks by establishing agreement about goals with their subordinates and not by dictating a detailed implementation plan. MBO is about setting objectives and then breaking these down into more specific goals or key results. It also provides a framework for setting clear expectations between Managers and their peers.

The principle behind MBO is to make sure that everybody within the organisation has a clear understanding of the aims, or objectives, of that organisation, as well as awareness of their own roles and responsibilities in achieving those aims. The complete MBO system is to get managers and empowered employees acting to implement and achieve their plans, which automatically achieve those of the organisation.

In an MBO bonus program, reward is therefore directly linked to the contribution an employee makes towards achievement of the company’s goals and objectives.

      1.1. Setting Objectives
In MBO systems, objectives are written down for each level of the organisation, and individuals are given specific aims and targets. “The principle behind this is to ensure that people know what the organisation is trying to achieve, what their part of the organisation must do to meet those aims, and how, as individuals, they are expected to help.

An MBO system should provide focus. So objectives should be precise and few.

For MBO to be effective, individual managers must understand the specific objectives of their job and how those objectives fit in with the overall company objectives set by the board of directors.

The managers of the various units or sub-units, or sections of an organisation should know not only the objectives of their unit but should also actively participate in setting these objectives and make responsibility for them.

The review mechanism enables leaders to measure the performance of their managers.

      1.2. Individual Responsibility
MBO creates a link between top management’s strategic thinking and the implementation of that strategy lower down in the organisation. Responsibility for objectives is passed from the organisation to its individual members. It is especially important for knowledge-based organisations where all members have to be able to control their own work by feeding back from their results to their objectives.

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2. SCM MBO Bonus Plan Procedure

2.1. Process Summary