Wednesday, 11 July 2007

CIPD: Latest research in Reward

I attended an excellent CIPD seminar today: 'Research into practice: latest research in reward', held at County Hall.

The highlight of the event for me was a 20 minute presentation given by Monica Franco-Santos, a research fellow at Cranfield, on the impact of using non-financial performance measures in top executive incentives.

Monica has looked at whether the 67% of organisations that use balanced measures from business scorecard or other similar business performance management systems in executive compensation outperform organisations that don't make this link.

The short answer is no. Including balanced measures in exec comp can be detrimental to both ROA and annual sales growth.

The longer answer is it depends upon business risk, ownership structure, organisation culture, quality of performance measures and reward system effectiveness. For example, the link does not work where there is:

  • moderate rather than either high or low business risk
  • a control oriented rather than continuous improvement oriented cultural values.
In addition, to be successful, measures need to be linked to long-term rather than short-term incentives. Measures used for reward may need to be different, but have line of sight to measures used for business performance management. And the number of these need to be kept down as people can only concentrate on a certain number of measures. These need to be the measures that are most relevant for a particular business, its context and strategy - "one size fits all does not work".