Bsc Accounting

(Case 2-48) Compensation tied to Balance Scorecard, degree of difficulty of target achievement.

Required:

(a) What are some general advantages of and areas of concerns surrounding the linking of compensation to a Balanced Scorecard?

Advantages:

* A large advantage of linking compensation to a balanced scorecard is reward systems. Employees will feel motivated when they help achieve their company’s success. By linking the Balance Scorecard goals to compensation, it pressures and motivates employees/managers to work their best and to not under-perform. Being rewarded for successful outcomes makes employees strive to better contribute and do their best, therefore overall helping the company. Page 45 in the book explains how employees are asked to develop personal objectives after they understand their operating unit/strategy- Most organizations will then link “Incentive compensation” to the balanced scorecard.

* Receiving compensation is a method to provide workers with an incentive to reach a certain objective or level of productivity.

* ** Chapter 9 explains how organizations use intrinsic and extrinsic rewards to motivate employees.

* Examples:

* Intrinsic rewards: volunteering for no financial compensation but feeling rewarded anyway for helping a good case (pg 360)

* Extrinsic rewards-tips, cash bonuses, stock bonuses, recognition, financial compensation. (pg 361)

Concerns:

* A main concern with linking compensation to a balance scorecard is that the information and data from the BSC may not be rational or reliable, which can lead to unfair rewards and benefits for workers.

* Often another concern is evaluating performance measurement solely on financial measures/results. The system should also tie in operational improvements/measurements and strategy.