Chapter 11 Notes

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Financial Accounting
Prof.Jan Klakurka

Chapter 11 Aligning Performance Goals and Incentives - Successful strategy implementation requires communicating strategic choices to hundreds or thousands of employees. - Each employee requires guidance about how they can contribute, and performance goals provide that guidance. - A goal is a formal aspiration that defines purpose or expected levels of achievement. Goals specify the ends that managers wish to achieve, and the means by which to achieve them. Goals, Objectives, and Targets - Goals relate to general aspirations - Objectives or targets more specific. They incorporate measurement standards and time frames against which to gauge progress and success - Goals and objectives can be made actionable only when measurement is attached to any set of aspirations. - Performance goal denotes a desired level of accomplishment against which actual results can be measured Purpose of Performance Goals - Without the clarity of performance goals, employees may choose very different ways of generating financial returns - Performance goals and measures allow systematic and clear communication of what managers need to focus on. The unambiguous performance goals frees up top management attention to focus on other things, allowing high ROM. Critical Performance Variables - Two steps in determining critical performance variables: (1) work deductively to identify potentially important performance drivers (variables that either influence the probability of successfully implementing the strategy, or provide the largest potential for marginal gain over time), (2) identify the critical performance variables from among this list of performance drivers. Selecting Performance Measures - A measure is a quantitative value that can be scaled and used for purposes of comparison - Performance measures may be financial or nonfinancial. Financial measures are stated in monetary terms, nonfinancial measures are quantitative data created outside the formal accounting system. - To determine if a measure is suitable to support a performance goal, it must be subjected to 3 tests: 1. Does it align with Strategy? 2. Can it be
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