Linking Rewards to Performance Measures.
Should compensation systems be linked
to balanced scorecard measures? Some companies,
believing that tying financial compensation
to performance is a powerful lever,
have moved quickly to establish such a linkage.
For example, an oil company that we’ll
call Pioneer Petroleum uses its scorecard as
the sole basis for computing incentive compensation.
The company ties 60% of its executives’
bonuses to their achievement of ambitious
targets for a weighted average of four
financial indicators: return on capital, profitability,
cash flow, and operating cost. It bases
the remaining 40% on indicators of customer
satisfaction, dealer satisfaction, employee satisfaction,
and environmental responsibility
(such as a percentage change in the level of
emissions to water and air). Pioneer’s CEO
says that linking compensation to the scorecard
has helped to align the company with its
strategy. “I know of no competitor,” he says,
“who has this degree of alignment. It is producing
results for us.”
Linking Rewards to Performance Measures.
Should compensation systems be linked
to balanced scorecard measures? Some companies,
believing that tying financial compensation
to performance is a powerful lever,
have moved quickly to establish such a linkage.
For example, an oil company that we’ll
call Pioneer Petroleum uses its scorecard as
the sole basis for computing incentive compensation.
The company ties 60% of its executives’
bonuses to their achievement of ambitious
targets for a weighted average of four
financial indicators: return on capital, profitability,
cash flow, and operating cost. It bases
the remaining 40% on indicators of customer
satisfaction, dealer satisfaction, employee satisfaction,
and environmental responsibility
(such as a percentage change in the level of
emissions to water and air). Pioneer’s CEO
says that linking compensation to the scorecard
has helped to align the company with its
strategy. “I know of no competitor,” he says,
“who has this degree of alignment. It is producing
results for us.”
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