Internal Target Agreement
Definition and Origin
The internal target agreement refers to a written or verbal arrangement between employees and their supervisors within an organization, by which concrete goals for a defined period are jointly established. These goals relate to the work content, projects, or competencies of the employees and often serve for performance evaluation, compensation structuring, as well as personal development within a professional context.
Originally, the concept of target agreements emerged primarily in management theory in the 1950s, especially through the so-called “Management by Objectives” (MbO), which was significantly shaped by Peter F. Drucker. While target agreements were first established mainly in general management within companies, today they are used in various organizations—including law firms.
Significance in the Law Firm and Corporate Context
Internal target agreements play a central role in organizations for managing performance and motivation. In law firm environments, target agreements between employees and supervisors set out concrete expectations for work results and processes. Achievement of goals and the degree to which goals are met are often linked to variable compensation components, known as bonus payments.
Furthermore, target agreements are used to specifically promote individual development, the assumption of responsibility, or participation in firm projects. They create transparency regarding expectations on both sides and make it possible to make achievements visible and identify development potential. In addition to quantitative goals (such as revenue, client acquisition, project completions), qualitative goals (e.g., teamwork, further training, client care) are also common in law firms.
Framework Conditions: Legal, Organizational, and Market Standards
Legal Aspects
Internal target agreements are generally voluntary arrangements and supplement the employment contract. Legally, they are considered ancillary agreements unless they are expressly incorporated into the employment contract. Target agreements may not violate statutory provisions or collective bargaining agreements. The goals must also be achievable, measurable, and clearly formulated (“SMART” criteria: specific, measurable, attractive, realistic, time-bound).
Because target agreements can affect variable pay components, a written record of the agreements is recommended. Ambiguous or unattainable goals can lead to labor law disputes. It is the duty of care of the leadership to choose realistic goals.
Organizational Standards
Target agreement meetings are typically held at regular intervals, usually annually or semi-annually. Management or team leaders and employees reflect on goal attainment to date and set new targets for the upcoming period. The process can form part of a comprehensive performance management system. In larger organizations, digital platforms or standardized templates are often used to document agreements.
Market Standards
The use of internal target agreements is established in many law firms and commercial enterprises, especially at locations with an international focus. Within the framework of talent management and staff development, they serve to harmonize individual interests with the goals of the overall organization.
Impact on Career Paths and Development Opportunities
The achievement of agreed targets can have a direct impact on career progression. For example, promotions, assumption of responsibility, or personal development opportunities are often linked to the consistent achievement or exceeding of jointly agreed goals. Internal target agreements serve in this respect as an instrument for objectively assessing individual performance.
In addition, target agreements are used to systematically promote personal development, for example through training objectives, involvement in new areas of responsibility, or the assumption of project responsibility. For career starters, internal target agreements provide clear guidance on expectations and development paths within the company or law firm.
Advantages and Disadvantages as well as Typical Points of Discussion
Advantages
- Transparency: Clearly defined goals create clarity regarding expectations and evaluation criteria.
- Motivation: Appropriately chosen goals can boost employee motivation.
- Performance Orientation: Target agreements promote a proactive and results-oriented working approach.
- Development: Individual and practice-oriented goals support targeted further development.
- Feedback Culture: Regular meetings enable continuous feedback.
Disadvantages
- Lack of Flexibility: Rigid goal setting may give too little consideration to changing circumstances.
- Overload: Unrealistic goals can be demotivating or lead to overload.
- Subjectivity: The evaluation and formulation of goals can potentially be subjectively influenced.
- Administrative Burden: Documenting and tracking target achievement requires additional effort.
Points of Discussion
In practice and in specialist circles, target agreements are particularly discussed regarding their structure and measurability, their impact on compensation, and their role in sustainable personnel development. Another point of criticism is that qualitative goals (e.g., team performance, working climate) are more difficult to measure than quantitative goals. Individual tailoring of goals and fair, transparent communication are crucial for the acceptance and effectiveness of target agreements.
Practical Examples and Application Scenarios
In the daily routine of a law firm, internal target agreements might look like this:
- Quantitative Goals: Agreement on a revenue target for the upcoming business year or a specific number of successfully completed mandates.
- Qualitative Goals: Enhancement of client communication skills, participation in further training, or fostering collaboration within the team.
- Project-Related Goals: Participation in a digitization project, taking over coordination of a practice area, or initiating an internal knowledge database.
The target agreement meeting is typically held at the beginning of the year and serves to define individual target criteria. At the end of the target period, there is a joint review and reflection on target achievement. Based on this, development steps, learning opportunities, and, where applicable, the payout of variable salary components (bonuses) are determined.
Frequently Asked Questions (FAQ)
What is an internal target agreement?
An internal target agreement is a formal understanding between employees and leadership, in which concrete work objectives are agreed upon for a defined period.
Are target agreements mandatory?
Reaching a target agreement requires the consent of both parties. They are generally voluntary unless such an agreement is contractually stipulated.
Do target agreements affect salary?
Target agreements are often linked to variable compensation components. Achieving the targets can therefore affect bonus payments or material incentives.
What happens if goals are not achieved?
If targets are not met, meetings are usually held to clarify the reasons and determine new development measures. In larger companies or law firms, such processes take place transparently and according to defined policies.
Can target agreements be adjusted retroactively?
In principle, the possibility exists to adjust target agreements by mutual consent during the cycle, especially if the underlying conditions change.
What is the benefit for early career professionals?
Target agreements, especially for employees at the start of their careers, provide concrete orientation and help to plan and manage individual development steps in line with the goals of the organization.
Internal target agreements are therefore a central instrument of modern human resource management. They provide clear performance management, support individual development opportunities, and contribute to motivation, feedback, and transparency in law firms as well as companies.
Frequently Asked Questions
Who is legally responsible for creating and implementing internal target agreements?
Under German employment law, the employer is fundamentally responsible for creating, designing, and implementing target agreements, provided this is stipulated in the employment contract or a company regulation. The target agreement usually arises in the context of a bilateral negotiation process between employer and employee, and its validity requires the agreement of both parties. Unilateral target specifications by the employer, on the other hand, do not constitute target agreements, but rather target specifications, and are legally to be treated differently. The employer also bears the main responsibility for properly initiating the target agreement process, setting deadlines on time, and clearly defining the criteria by which success is measured. If the employer fails to do so, liability for damages may arise, for example concerning variable salary components.
What are the legal consequences of the absence of a target agreement?
If no target agreement is reached even though a corresponding provision exists in the employment contract, this can have serious legal consequences. If achieving the targets is a prerequisite for variable pay components, the employer may be liable for damages if they have culpably not conducted negotiations or have not concluded a target agreement (see BAG, judgment of 12.12.2007, Ref. 10 AZR 97/07). In such cases, the employee is usually treated as if he or she had achieved the goals 100%. However, this does not apply if the employee is responsible for the absence of the target agreement. It is therefore recommended to always document the conclusion or failure of the target agreement.
To what extent is the target agreement subject to co-determination by the works council?
The works council has a mandatory co-determination right according to § 87 para. 1 nos. 10 and 11 of the Works Constitution Act (BetrVG) in the introduction and design of target agreement processes, insofar as these relate to company pay structures and the determination of remuneration methods. This particularly concerns the modalities of achieving goals, evaluation of targets, and the basis for variable compensation. In contrast, the works council has no co-determination right concerning the actual targets set for individual employees, as this falls under entrepreneurial freedom. Nevertheless, a works agreement on target agreements can establish generally binding conditions.
How should target agreements be legally documented?
For legal validity, the written form is recommended, but it is not usually mandatory. Oral target agreements are valid but entail substantial evidential difficulties in the event of a dispute. A clear and comprehensible written documentation of the goals, measurement criteria, reference period, and individually agreed measures is therefore strongly recommended from a legal perspective. In addition, it should be recorded how non-achievement or omission of goals is to be handled to prevent later disputes.
Under what conditions are target agreements legally void or contestable?
Target agreements can be void or contestable if they violate statutory provisions, collective agreements, or good morals. Moreover, goals whose attainment lies outside the employee’s sphere of influence (so-called unrealistic or unachievable goals) are legally problematic. Violations of the General Equal Treatment Act (AGG), for example in cases of discrimination against certain employee groups, can also make target agreements contestable. Furthermore, defects of consent such as coercion or fraudulent misrepresentation can justify contestation.
What are the legal consequences of adjustment or modification of an ongoing target agreement?
A unilateral change to the target agreement by the employer is not legally permissible. Changes always require the agreement of both parties. Particularly in the case of unforeseen events (e.g., restructuring, market influences, long-term illness), adjustments should be made to arrive at an appropriate and reasonable solution for the parties. Target agreements often include clauses allowing for adjustment in the event of significant changes in conditions. In the event of a dispute, the burden of proof for the necessity and scope of such changes in each individual case lies with the party relying on the change.
Are internal target agreements subject to data protection requirements?
Yes, internal target agreements are subject to the data protection requirements of the General Data Protection Regulation (GDPR) and the German Federal Data Protection Act (BDSG). The personal data contained in target agreements may only be processed for the purposes of performance assessment and remuneration. Only authorized persons may access this data. Disclosure or publication of the results achieved is only permitted if provided by law, collective agreement, or with the consent of the person concerned. Principles such as transparency, data minimization, and storage limitation must be strictly observed.