Mobil allowed the individual business units to create their own Balanced Scorecards, including the measures and targets. that would be used to determine the managers’ compensation. Additionally, the individual managers could assign weights to the various measures to determine how much each would contribute toward the calculation of the manager’s bonus. What are the advantages and possible problems with this method?
The Balanced Scorecard is a tool utilized in corporations for the purpose of compensating workers in a way that is beneficial for both the management and the workforce. The Balanced Scorecard technique aids assessment of corporation performance in terms of monetary and nonmonetary aspects. Connecting compensation to the Balanced Scorecard is useful because it acts as an equitable way of evaluating performance of companies by utilizing similar standards.
The connection between company profitability and the amount of reward motivates employees to improve their performance. Realization of company’s goals is possible with the implementation of Balanced Scorecard and compensation. Usually, achievement of the goals and objectives of the company depends on the productivity of workers.
Utilization of the Balanced Scorecard motivates workers to improve their performance and in turn achieve rewards. The linkage between the Balanced Scorecard and compensation operates well within the organization which possesses established quality programs, for example, the Mobil Corporation has implemented quality programs facilitating the efficient integration of Balanced Scorecard. Assimilation of the Balanced Scorecard and compensation employs tactics and visions in which the company has to define its goals and objectives.
People create their own unique methodologies to achieve the set goals. Utilization of Balanced Scorecard enables managers to improve performance in sections that act as bottle necks. The use of performance factor based on the complexity of the target is significant to employees. This is because it separates difficult tasks from those which are easy to achieve. This does not only motivate employees but also helps in the achievement of corporate goals.
Disadvantages of linking the Balanced Scorecard with compensation are evident because the implementation becomes complex due to the time factor. The process of implementation is time consuming; maintaining the linkage between the Balanced Scorecard and compensation for a long period is difficult. The use of scorecards with compensation can allow the wrong use and definition of measures. Poor definition of measures can lead to unfair rewarding because performance attained by workers may be insensible. There is a difference in compensation between a normal employee and a senior executive. Even when the employee works harder than the executive does, their salaries cannot be similar.
The reward system may rely on the amount of salary that the employee receives. This becomes unfair when lower paid workers are more productive as compared to those with bigger salaries. It negatively affects people working in a developing company because at this level, the performance of the company in terms of profitability is low, thus workers receive low compensation. The Balanced Scorecard method lacks sufficient tools to measure performance of the company at a rebuilding phase, thus contributing to unfair compensation for workers.
Assume the company previously based bonuses on the financial performance of the business unit. How would you suggest the company handle the transition from the previous method of determining compensation to one based on the Balanced Scorecard?
In order for the company to change from the previous method into another one that utilizes the Balanced Scorecard, it must ensure assessment of the entire business plan. The company is to work out various business procedures, goals plus objectives. It should indicate the rank measures that are suitable for the progress of the organization in attaining its goals and objectives. The company has to employ strategic planning with the management for the purpose of reaching a consensus on goals, visions and objectives of the business. The company can handle the transition by purposely forming a committee for devising company aims. Utilizing the Balanced Scorecard as a communication tool is vital in this process because the members have a chance to comment on the progress of the committee.
A requirement exists for a revision of the scorecard followed by a passage of information regarding the contents of the revised scorecard. Every person should form one’s own Balanced Scorecard for the purpose of achieving goals and objectives. The planning committee should review individual scorecards and compare them with those of the corporation. The management should develop a long term plan for the corporation by considering the Balanced Scorecard. Through evaluation of the Balanced Scorecard for each employee in the organization, the company can make necessary recommendations concerning the rewards of the workers. After identification of objectives, the organization has to create performance measures for every goal.
The measurements will be useful for monitoring the success of the company plans and exposing possible gaps that may emanate between the present and expected performance. Initiatives emphasizing on strategic objectives should be in place. In the process of linking the Balanced Scorecard with compensation, there should be a connection with the team as well. This is fundamental in aiding responsibility for performance.
An organization implementing the Balanced Scorecard system should ensure proper reporting of various measures with regard to performance. This ensures that required data reaches the proper partiers in a timely way. The company should ensure that all the individuals in the organization are aware of the transition which is to occur. They should have a proper understanding of the significance of the Balanced Scorecard to the company. This knowledge will enable employees to respond positively to strategies aimed at transforming the organization into a user of the Balanced Scorecard. The process of connecting compensation to the Balanced Scorecard requires the collaboration of the executive and lower level managers.