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Performance Measurement and Management: Strategies, Implementation, and Compensation Plans

Learn about performance measurement's purpose, Balanced Scorecard implementation, strategy alignment, and effective compensation plans to motivate and reward employees. Understand agency theory and key performance criteria.

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Performance Measurement and Management: Strategies, Implementation, and Compensation Plans

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  1. Performance Measurement &Management Compensation Chapters 10 & 11, Management Control Systems, 12th Ed., Anthony and Govindarajan

  2. Performance Measurement • Purpose is to implement strategy • Should look at both short- and long-term • Must measure critical success factors • Current • Future • Used to motivate and reward people

  3. The Balanced Scorecard • Simply put, it’s a performance measurement system • Provides goals • Provides measurement metrics • It must be based on strategy • Should stress what’s important for the organization

  4. The Balanced Scorecard • Basic example deals with 4 perspectives • Financial (external) • Customer • Internal business (processes) • Innovation & Learning • Can be expanded to encompass other areas

  5. Implementation • What’s the organizational strategy? • What’s the specific goal? • Must be measurable • How is it to be measured? • Must provide for quantification • Does it integrate measures into the evaluation system? • Are the results reviewed frequently?

  6. What to Avoid • Emphasis on short-term financial measures • Attempts to link nonfinancial measures with financial results • Excessive goals and measurements • Outdated targets (goals) • Failure to use interactive control • Don’t try to integrate into Balanced Scorecard

  7. Management Compensation • Should seek goal congruence • Should provide positive incentives • Should be focused on a “team effort” • Should require conformance to standard procedures

  8. Compensation Plans • Normally consists of • Salary (contract driven) • Benefits (contract driven) • Incentives (performance driven) • Usually divided into • Short-term • Long-term

  9. Short-Term Incentive Plans • Normally based on performance in a given year • Examples include • Bonus pools, carryovers, and deferred compensation

  10. Long-Term Incentive Plans • Normally based on the company’s performance over a period greater than one year • Examples include • Stock options, phantom shares, stock appreciation rights, performance shares, and performance units

  11. Types of Incentives • Financial • Money • Benefits • Perquisites • Nonfinancial • Promotion • Autonomy • Recognition

  12. Performance Criteria • Reasonable and understandable • Adjustable, as needed • Orient on both • Short-term performance • Long-term performance • Measurable against planned

  13. Agency Theory • Decision-making authority delegated by owners to service providers • Owners expect service providers to act in owners best interest • Owners and service providers do not have same objectives • Each party will act in own best interest • Each party will have different risk tolerances

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