Scorecard Best Practices

Linking Compensation with Performance

All organizations interviewed had strong, and often extreme, opinions on the subject of pay‐for‐performance. There appears to be no one “right” decision, but an organization does need to decide whether or not to link compensation to performance. The choice appears to be correlated with the type of culture desired by the organization. Compensating employees based on attaining goals—“green lights”—is vastly different from encouraging employees to highlight inefficiencies, and draw attention to targets in “red light” status.

There are two main points to ensure for organizations considering whether to link compensation to performance:

1. The scorecard system is motivating the employees appropriately to act in congruence with the organizational strategy.

2. The compensation and reward system is appropriately linked to the scorecard system.

Motivating Employees

As discussed in Chapter 3, scorecard systems should help align employee behavior with the strategic direction of the organization.

While employees value what is measured (because it is being reviewed and makes their performance visible), a common challenge is that what is being measured is not of value to the organization. It is important to ensure that measures used to motivate and reward employees are tied to strategy—preferably using a formal method. Results from the SHAPs study indicate that organizations with formal ties between strategy and measures agree that measures on their scorecards ...