Transcript Extra material - final two weeks of class

Chapter
Ex
Performance
Measurement & Rewards
Articles
 “Performance Review: Perilous Curves Ahead”
 “From Balanced Scorecard to Strategic Gauges:
Is Measurement Worth It?”
 “Risky Business: The New Pay Game”
 “Why Incentives Cannot Work”
Performance: Units vs. Managers
 Measure performance of operating units.
 planning, decision-making, control
 Measure performance of managers.
 to hold managers responsible
 an incentive to perform well
 promotion, firing, pay raises …
Performance: Units vs. Managers
 Performance of the manager might
differ from performance of the unit.
 expenses over which manager has
no control
 corporate overhead, rent, etc.
 a good managers might be assigned
to a poor division
Rewards
 Should managers be rewarded?
 incentives to perform well
 attracts talented managers to the firm
 might encourage dysfunctional behavior
 Reward effort or performance?
 effort is difficult to measure
 performance = skill + effort +
uncontrollable factors
Rewards
 How much risk?
 stronger incentives  greater risk
 more uncertainty  greater risk
 most managers are risk averse
 Managers rarely have complete control.
 rewards are risky…
 … but they increase incentives
Comparative Performance
 Comparing operating units.
 some comparisons are more
meaningful than others:
 ROI vs. income
 % sales growth vs. $ sales growth
 an alternative: compare actual
performance to a performance target
Performance Targets
 Advantages of targets
 standards against which
performance can be judged
 to help managers focus their
effort
 Disadvantages of targets
 incentives to set a low target
 incentives to manipulate the
numbers
Performance Targets
 How difficult should targets be?
 conventional wisdom: tight but
attainable
 depends on how targets are used
 difficulty tells manager where to
direct attention
Performance Criteria
 Objective vs. subjective evaluation
 objective measures don’t tell the
whole story
 subjective evaluations are harder
to defend and tend to be overly
positive
 Financial vs. non-financial measures
 financial: the bottom line
Satisfaction = 9.0
 non-financial: can be more
forward-looking