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Aligning Performance Goals and Incentives

3 Pages
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Department
Financial Accounting
Course Code
MGAD40H3
Professor
Prof.Jan Klakurka

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MGTD54 Wk 9 Notes
Ch.11 Aligning Performance Goals and Incentives
Nature of Performance Goals
- goal formal aspiration that defines level of achievement
- specify ends and means which to achieve them
Goals, Objectives, Targets
Goals: general aspirations
Objectives/Targets: measurement stds and time frames to gauge progress
- measurement attached to set of aspirations
Performance goal: desired level of accomplishment against actual results measured
Purpose of Performance Goals
- diff ways of generating financial returns w/o clarity of purpose
- communicates bus direction to subordinates
- each measure (rev growth, store openings, exp reduction, price vs comp) communicates diff
set of priorities
- enhance ROM
- subordinates infer strategic direction top mngrs wish to follow
- frees up top mgmt attention to focus on other things
- signal preferences: where ppl should dedicate their time
- disciplined approach to mgmt working through others
- communicate prospects of the business with stockholders and analysts
Critical Performance Variables
- factors must be achieved for intended strategy to succeed
1. work deductively to identify performance drivers
Performance drivers: variables (1) influence prob of strategy successful implementation
(2)provide largest potential for marginal gain over time
2. identify critical performance variables from list of performance drivers
Any performance variable that could cause strategy to fail
Selecting Performance Measures
Measure: quantitative value that can be scaled and used for purposes of comparison
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MGTD54 Wk 9 Notes Ch.11 – Aligning Performance Goals and Incentives Nature of Performance Goals - goal formal aspiration that defines level of achievement - specify ends and means which to achieve them Goals, Objectives, Targets Goals: general aspirations Objectives/Targets: measurement stds and time frames to gauge progress - measurement attached to set of aspirations Performance goal: desired level of accomplishment against actual results measured Purpose of Performance Goals - diff ways of generating financial returns w/o clarity of purpose - communicates bus direction to subordinates - each measure (rev growth, store openings, exp reduction, price vs comp) communicates diff set of priorities - enhance ROM - subordinates infer strategic direction top mngrs wish to follow - frees up top mgmt attention to focus on other things - signal preferences: where ppl should dedicate their time - disciplined approach to mgmt working through others - communicate prospects of the business with stockholders and analysts Critical Performance Variables - factors must be achieved for intended strategy to succeed 1. work deductively to identify performance drivers Performance drivers: variables (1) influence prob of strategy successful implementation (2)provide largest potential for marginal gain over time 2. identify critical performance variables from list of performance drivers Any performance variable that could cause strategy to fail Selecting Performance Measures Measure: quantitative value that can be scaled and used for purposes of comparison www.notesolution.com -financial measures: monetary terms - nonfinancial measures: quantitative data outside formal accounting system Three tests to determine if measure is suitable to support performance goal: 1. Align with strategy: measures tell what important 2. Measured effectively : obj, complete, responsiveness 3. Measure Linked with Value: output measures (lagging) show econ value created, input and processmeasures valid in managers understand cause-and-effect relationships Nature of Measures (2) Objective measure: independently verified, little ambiguity - subjective measures rely on supervisor supervision Complete measure: captures all relevant attributes of achievement i.e. share price Responsive measur
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