Performance Measurement
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Many companies set performance measures to track progress toward goals as well as to set compensation such as bonuses. This is considered an incentive to create value for the company and its shareholders. Imagine the CEO of Brown Industries has set performance measures for each of their three divisions. Key management at each division will receive bonuses based on achieving these targets. Two measures include sales growth of 10% and return on assets of 14%.
1- Describe the pros and cons of compensation based performance measures and the linkage to creating shareholder value.
2- Explain the potential ethical dilemmas when performance is not up to expectations and the target may not be met. For example, no bonus).
Refer to the article attached...not to exceed 500 words.
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Solution Summary
Your tutorial is 363 words, including bullet points of 4 pros and 3 cons of performance management using the example given (bonus based on sales and return on assets). Ethical issues surrounding bonuses based on targets are discussed.
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1- Describe the pros and cons of compensation based performance measures and the linkage to creating shareholder value.
Pros:
1. Gives workers an incentive to be productive in both generating customer transactions and keeping assets and profits in balance.
2. Helps workers to evaluate actions based on their impact on sales and return on assets.
3. Helps workers to see the importance of sales and return on assets to the business.
4. Likely improves sales and return on assets, at least in the short run.
Cons:
1. Workers have an incentive to increase the short-run sales and return on assets but no incentive to invest in ...
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