Check What Your 2027 Targets Will Actually Reward

The annual plan can institutionalize conflict

As 2027 plans move toward approval, executives are negotiating revenue targets, cost commitments and incentive terms. These discussions also shape organizational health. They establish what people will protect when priorities collide.

Consider a familiar pattern. Sales is rewarded for bookings. Delivery is measured on margin. Product is expected to reduce customization. Each target appears reasonable. Together, they can encourage commitments that the business cannot fulfill profitably without disrupting its roadmap.

The resulting friction is often described as a collaboration problem. But asking leaders to work together will not resolve a system that rewards them for working against one another.

McKinsey’s research connects organizational health with sustained performance and examines how organizations align, execute and renew themselves. ^[1] That makes health more than an employee sentiment measure. It is also a question of whether the operating system supports the strategy.

For CEOs and boards, the planning question is direct: Can each function achieve its targets while the enterprise falls short? If the answer is yes, the plan needs another review.

Examine the cost of hitting the number

Targets focus attention. They can also push necessary work outside the field of view.

A procurement team can meet a savings target while increasing supply risk. A service team can reduce handling time while leaving customers with unresolved problems. A business unit can protect its margin by transferring difficult work to a shared function whose budget does not reflect the burden.

These are illustrative operating risks, not arguments against measurement. The issue is what a measure leaves out—and who absorbs the consequences.

At the extreme, distorted performance pressures can support serious misconduct. In its 2020 Wells Fargo settlement, the SEC described how an account-volume sales model contributed to conduct that misled investors about the success of the bank’s core business. ^[2] The lesson is not that every ambitious target creates misconduct. It is that a strong reported result does not establish that the underlying behavior is sound.

Before approving a material target, ask its owner to identify three things: what behavior it will encourage, what might be neglected, and where the resulting cost could appear.

Do not accept “we will monitor it” as the control. Specify the evidence, the reviewing executive and the condition that requires intervention.

Test the handoffs before approving the targets

Use one executive working session to examine a small number of consequential cross-functional commitments. Choose those with material effects on revenue quality, customer delivery, cash or strategic execution.

For each commitment, put the relevant leaders around the same table. Review the proposed targets alongside actual examples of recent work: a complex sale, a supplier change, a product launch or a customer escalation. Use operating records, not individual monitoring.

Then work through four questions:

• What counts as success? Define the enterprise result, not just each function’s contribution.
• Where does responsibility transfer? Identify what must be true before another team accepts the work.
• Who carries the downside? Make rework, exceptions, delays and additional costs visible.
• What happens when the targets conflict? Agree on who resolves the trade-off and what evidence they need.

For a complex sale, for example, a booking target might be paired with explicit delivery acceptance criteria and review of material commitments outside the standard offer. Sales still owns growth. Delivery still owns execution. Neither can quietly transfer an unpriced obligation to the other.

The aim is not to add a shared metric to every role. Too many measures obscure responsibility. Use the smallest set of targets, boundaries and review points that makes the trade-off explicit.

Make incentive integrity part of organizational health

An organizational health review should compare stated priorities with the behavior that earns recognition, resources and compensation.

Look for recurring exceptions, disputed handoffs, repeated rework and costs that move between functions. These patterns warrant investigation. They do not, by themselves, establish that a team or individual is failing.

The G20/OECD Principles of Corporate Governance place executive remuneration within board oversight and connect it to long-term company interests. ^[3] Boards therefore have reason to ask whether incentive design reinforces the strategy—or undermines it through conflicting expectations.

Management should bring forward the material conflicts, the proposed changes and any unresolved trade-offs. The board should challenge the design without taking over operating decisions.

Before the 2027 plan is locked, require each executive to name one target that could produce the wrong behavior and explain the safeguard. Revisit those assumptions during the first-quarter operating reviews.

A healthy organization does not eliminate tension. It makes tension visible and resolves it without rewarding one part of the business for weakening another.