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Performance Measurement, Compensation, and Multinational Considerations
Performance Measurement, Compensation, and Multinational Considerations
Firms are increasingly presenting financial and nonfinancial performance measures for their subunits in a balanced scorecard, and its four perspectives:
Financial 2. Customer 3. Internal business process 4. Learning and growth
1.
growth will lead to improvements in internal business processes. Improvements in the internal business processes will lead to improvements in the customer and financial perspectives.
3.
4.
Selecting subunit operating income as a metric is inappropriate because it obviously differs simply on the differing size of the subunits.
2012 Pearson Prentice Hall. All rights reserved.
ROI =
Income Investment
ROI
Also called the accounting rate of return (ARR) or the accrual accounting rate of return (AARR)
ROI
ROI may be decomposed into its two components as
follows:
Income Investment
Income Revenues
Revenues Investment
Analysis
Residual Income
Residual income (RI) is an accounting measure of
income minus a dollar amount for required return on an accounting measure of investment. RI = Income (RRR X Investment)
RRR = Required Rate of Return
EVA
X(
Total Assets
Current Liabilities
)}
appropriate. ROI, RI, EVA, and ROS all basically evaluate one period of time. ROI, RI, EVA, and ROS may all be adapted to evaluate multiple periods of time.
component
companies:
The economic, legal, political, social, and cultural
environments differ significantly across countries. Governments in some countries may impose controls and limit selling prices of a companys products. Availability of materials and skilled labor, as well as costs of materials, labor, and infrastructure may differ across countries. Divisions operating in different countries account for their performance in different currencies.
distinguished from the performance evaluation of that managers subunit, such as a division of the company.
suboptimal behavior may occur: the goals of the firm are sacrificed in order to meet a managers personal goals.
Moral Hazard
Moral hazard describes situations in which an
employee prefers to exert less effort (or report distorted information) compared with the effort (or accurate information) desired by the owner because the employees effort (or the validity of the reported information) cannot be accurately monitored and enforced.
Intensity of Incentives
Intensity of incentiveshow large the incentive
sensitive to or change significantly with the managers performance. They do not change much with changes in factors that are beyond the managers control. They motivate the manager as well as limit the mangers exposure to risk, reducing the cost of providing incentives. May include benchmarking.
multiple tasks of a job, then the employer must measure and compensate performance on each of those tasks.
Team-Based Compensation
Companies use teams extensively for problem solving.
Teams achieve better results than individual
employees acting alone. Companies must reward individuals on a team based on team performance.
balances risk (the effect of uncontrollable factors on the performance measure, and hence compensation) with short-run and long-run incentives to achieve the firms goals.
2012 Pearson Prentice Hall. All rights reserved.
Each lever is important and needs to be monitored. Levers should be interdependent and collectively
Customer satisfaction
Employee satisfaction
Boundary Systems
Boundary systems describe standards of behavior and
Belief Systems
Belief systems articulate the mission, purpose, and
core values of a company. They describe the accepted norms and patterns of behavior expected of all managers and employees with respect to one another, shareholders, customers, and communities.
systems that managers use to focus organizational attention and learning on key strategic issues. Tracks strategic uncertainties that businesses face.