M&R division and business unit

8-79 (Compensation tied to balanced scorecard) Degree of difficulty of
target achievement in the mid-1990s mobile corporation’s marketing and
refining (M&R) division underwent a major reorganization and
developed new strategic directions. In conjunction with these changes,
M&R developed a balance scorecard around four perspectives:
financial customer, internal business processes and learning and growth.
Subsequently M&R linked compensation to its balanced scorecard
metrics. To illustrate, all salaried employees in M&R’s Natural
Business Units received the following percentages of their competitive
market salary:
Poor Performance within industry Average performance within industry Performance best in industry
Base Pay 90% 90% 90%
Award Based on corporate 1-2% 3-6% 10%
performance on financial metrics
Award based on performance on 0% 5-8% 20%
balanced scorecard metrics for the
M&R division and business unit 91-92% 98-104% 120%
The balanced scorecards included numerous metrics. M&R’s
financial metrics included return on capital employed and profitability
and customer metrics included share of targeted segments of consumers
and profitability of dealers. Internal business process metrics included
safety and quality indices. Finally learning and growth metrics
included an index of employees perceptions of the work climate at
M&R
a. What are the advantages and concerns in linking compensation to a balanced scorecard generally?
B. Evaluate M&Rs approach to linking compensation to multiple
measures including its system of assigning degrees of difficulty to
achieving targets. In your response, consider the process that is
involved in developing the compensation scheme.

 

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