Financial Analysis: A Controller’s Guide, Second Edition

Chapter 11. Evaluating Management Performance

The accounting staff is sometimes called on to not only calculate performance measures on which the management staff is judged and compensated, but also to recommend specific measurements for this purpose. The accounting department is sometimes drawn into the evaluation of manager performance because the accounting staff knows best which measures are easy to calculate and which require significant effort to compile. Also, if the controller is of high standing within the company, with a broad knowledge of company operations, then this person may have well-founded and well-respected reasons for recommending specific performance measurements. No matter what the reasons involved, this chapter is meant to be of assistance in determining which measurements to recommend, how to go about measuring them, and the format to use when reporting results. This chapter also delves into the interesting area of how tying performance to specific measurements can alter the behavior of managers, and not always in a positive manner.

Choosing Performance Review Measures

If asked to provide specific performance measurements for the review of management, a controller must first consider a number of issues. This section covers the reasoning behind linking measurements to corporate strategy and goals, as well as ensuring that measurements do not conflict with each other, and that at least some portion of the measurement orientation is toward cash flow.

The single ...