Introduction
The President of SAC has decided to adopt the Balanced Scorecard following his understanding of the benefits that accrue from such adoption such as the overall improvement in the company’s performance. The performance measures evaluated with the balanced scorecard can be classified into four groups namely; the customer perspective, financial perspective, internal business processes and the innovative and learning perspective. The President of SAC seeks a memo to identify how the company would tie the performance measures to compensation. This memo shall also discuss unethical behavior that can result if wrongful performance measures are used to tie performance measures to compensation. Further, the memo shall endeavor to outline how the company can avoid the unethical behavior as well as examine how it should tie performance measures to compensation.
The balance score card is an ideal management tool for a company in tying compensation to performance measures. This is because it overtly communicates the departmental expectations without losing sight of the fact of the function of each of the department in pursuing the company’s strategies. Some of the indicators of the company’s performance that it needs to have regard to, so as to tie to the compensation system include; cost of products, employee satisfaction, customer satisfaction and quality of service among others.
Unethical behavior
The SAC company must put in place a fair compensation system with respect to every of its employee. This is because if the compensation system is not fair or does not seem so, to every employee of the company, discontent will simmer. Ensuring that the compensation arrangement is reasonable and fair for every employee eliminates the chances of unethical behavior emerging. Unethical behavior in the company could arise when the discontented employees decide to pursue their own interest at the expense of those of the company. To this end, the employees may opt to utilize the unfair compensation system to benefit themselves with scant regard for the good of the company. An illustration is where a company has a bonus scheme in place which offers bonus payment of its employees who deliver good performance in a bid to boost the overall profitability of the company. It may well be the case that some of the employees are enterprising enough and thus qualify for bonuses. The unethical behavior in this case becomes realized the moment employees who lag behind in terms of performance are allowed to get a fraction of the bonus simply because they met the expectations of the company for the period. The way to make the system fair would be to provide incentives so as to ensure that every company employee is able to achieve their set targets and further incentives to those that surpass their set targets. In the event that such incentives are implemented, the employees become motivated and the objectives of the company are met.
In addition, a reduction of the company’s operating costs is a valuable asset to the company as it results to an upsurge in profits. On the same breadth, such attempt to cut on operating costs should not be done at the expense of the quality of the company’s products. The unethical behavior sets in whenever the senior management decides to cut on costs thereby lowering the quality of service and products offered to its customers. As an automobile company, the labor costs of the employee constitute one of the biggest overheads in the company. If the company’s senior management decides to cut on the operating costs by reducing the labor costs with the hope of increasing profitability, this would in effect lead to managers releasing workers. The complexity then arises as the company suffers staff shortage in producing its products and offering quality services to its clients. More so, the employees who are not affected by the restructuring program at the company suffer from the additional work and responsibility, as they are supposed to step into the gap left by the laid off workers without additional payment.
Consequently, the employees become demotivated and strained in their work, factors detrimental to overall quality of their products and services. When customers of the company get a raw deal in terms of quality products and services for their money, it is unethical. Similarly, the extra pressure absorbed by the remaining employees of carrying the workload of the laid off employees is immoral despite the benefits the company accrues through the reduction of the labor costs.
Avoiding unethical behavior
The company management can eliminate unethical behavior in the firm by way of inculcating good values among all employees. This can be achieved by offering strong leadership where the management seeks to create an environment whereby the employees will not be tempted to engage in unethical behavior. This could happen for instance, where the management shows the employees that they are appreciated for their work and that they are part of the firm’s family. This practice has the effect of preventing the employees from engaging in any unethical practice within the company as they view it as part of them. The leadership should instill this by holding forums, conducting parties and awards to the employees in celebration for their service.
However, that will not be suffice if the employees feel shortchanged by the company’s management despite the assurances made. In essence, this calls for measures to ensure that the compensation system at the firm is fair and reasonable to all employees. This inculcates solidarity amongst employees in turn leading to more productivity. As such, the employees do not feel the need to involve themselves in immoral behavior that is inimical to the company’s interests. In equal measure, the management should not overly focus on achieving profitability whilst disregarding the welfare of the employees such as would be the case where they decide to cut on the labor costs without concomitant adjustments to cure the imbalance.
Tying compensation to performance measures
The SAC Company may opt to implement a single measure so as to determine how the company is faring. However, this process puts the company management in a quandary as the employees may only be persuaded to obtain just enough value for the company to ensure its survival but not its maximum potential. It is therefore wise to implement a second measure of performance so as to ensure that the employees help the company realize its real maximum value. The addition of a second performance measure significantly improves production of the company as well as the quality of its products. It also ensures that the company’s employees do the best they can, hence leading to improved performance for the company. It must however be noted that, the existence of several performance measures for which the company’s employees must be aware of ,may prove a burden and this could hamper the achievement of the company’s objectives.
In tying performance to compensation, there should be a compensation package that takes into account both the company’s and employees’ success. For instance, the company may offer stock options to its employees over and above the award of bonuses, to motivate them to better performance. Further, the company can give bonus payment to every employee of the company it its total profits surpass the target mark set by the top management. This kind of incentive makes the employees to opt to stay on at the company thus eliminating the problems that come with high employee turnover. The same move would help the company save on training and recruitment costs of new employees.
Conclusion
Whilst adopting the balanced score card in the company in forming a compensation system, the same must be connected with the firm’s performance strategies. The areas that shall be measured so as to ascertain the level of performance must be those that can easily be quantified to be able to form cogent conclusions on whether there is need for improvement.
Going back to the various groups of performance measures highlighted at the introduction of this memo, customer service can be measured by the level of delivered products or returned products in the firm. The financial perspective is measured by having regard to what has taken place in relation to company’s operations. On the other hand, the internal process perspective can be measured by looking at the total output of products or the total time required producing a specific amount of products in the company. More importantly, the company must make sure that the compensation arrangement as set up in the firm is fair and reasonable to all employees to avoid the onset of unethical behavior.
References
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