I heard the news that the President of Sparklin Automotive Company has decided to go off my recommendation and adopt the Balanced Scorecard, which I believe he adopted it to improved the performance of the employees as well as the company itself here at Sparklin Automotive Company. The President of Sparklin Automotive Company took the time out and sent me an email informing me "We at Sparklin Automotive Company have decided to adopt the Balanced Scorecard".
The email also had some other information in it as well. The President of Sparklin Automotive Company also wants to try to base compensation off of or with the performance measures, those performance measures falls into four categories, which are financial perspective, customer perspective, internal process perspective, and learning and growth perspective. The President of Sparklin Automotive Company has asked me memo to him with responses to his questions about unethical behavior that could result if the wrong performance measures are mature when tying performance measures of financial perspective, customer perspective, internal process perspective, and learning and growth perspective. The President of Sparklin Automotive Company wants to know how Sparklin Automotive Company can avoid the unethical behaviors; the President of Sparklin Automotive Company also wants to know how Sparklin Automotive Company should tie the performance measures of financial perspective, customer perspective, internal process perspective, and learning and growth perspective to compensation.
Based off of the email I received from the President of Sparklin Automotive Company, I will interpret in the most detail as possible the performance measures of financial perspective, customer perspective, internal process perspective, and learning and growth perspective so it will be understood by the President of Sparklin Automotive Company and I will define unethical behavior. Upon completing that space, I will also define how to develop a fair system of compensation by explaining how it is customary as well as defining a glorious system of compensation. I will establish all this information in a memo to the President of Sparklin Automotive Company. The information will be provided with the intent of addressing all the questions and concerns the President of Sparklin Automotive Company has and may have after he reads my memo. I will begin this memo off with the explanation of the performance measures that fall into the four categories of financial perspective, customer perspective, internal process perspective, and learning and growth perspective, then I will go into explaining and defining unethical behavior, followed by how to develop a fair system of compensation or at least give some information on what it is and how it is outlined in relation to the four performance measures of financial perspective, customer perspective, internal process perspective, and learning and growth perspective, finally, I will conclude what was needed and what I explained to the President of Sparklin Automotive Company to ensure I have addressed the questions and concerns he had in relation to adopting the Balanced Scorecard and the unethical behavior resulting in using the performance measures of financial perspective, customer perspective, internal process perspective, and learning and growth perspective the incorrect way. I will have my supervisor read the memo prior to me sending it to the President of Sparklin Automotive Company to ensure all questions have been answered and that the correct information was provided to the President of Sparklin Automotive Company (CTUO, 2009).
Compensation and Performance Measures
After receiving your email in regards to the usage of the "Balanced Scorecard" at Sparklin Automotive Company, and relating the Sparklin Automotive Company's compensation to the performance measures contained in it. As I stated before, "performance measures fall into four categories, which are financial perspective, customer perspective, internal process perspective, and learning and growth perspective (Niven, 2006). We have already established, these performance measures are interdependent in that their success and failures rely on the success and failure of the others. Even though I can not speak for the company, it is my belief and educated guess that Sparklin Automotive Company's ultimate goal would more than likely be characterized by the performance measure within the residence of its financial objectives. Simply put, a bigger return on its investment or the net operating income at the destroy of the year would prove that the "Balanced Scorecard" of Sparklin Automotive Company a success. Another thing that must be considered is, if Sparklin Automotive Company intends on integrating a system of compensation based off the "Balanced Scorecard Performance Measures", the other levels will need to be in there as well. Management would need to create the compensation system involving customer help perspective, internal process perspective, and learning and growth perspective to ensure all levels of employees are engaged as well as challenged to perform at their highest level possible. "Reasonable, measurable goals and incentive for performance should be the basis of compensation for every employee" at Sparklin Automotive Company, no matter what their position in the company is (12manage, 2009).
When you effect a system of compensation, you must ensure that the compensation system is fair for all employees at Sparklin Automotive Company, because you want to ensure by doing this that you are doing all that you can do to eliminate any possibility of unethical behavior by the company's employees. If the system of compensation is not splendid the employees could disregard company goals and objectives, and pursue their absorb. Some employees may decide to go with their hold interests by trying to find loopholes in the compensation system package and exploit it to their have benefit with no regard to anything or anyone. I want to provide an example of what I just spoke of above. There is a company is offering a basic bonus plan that was site up to increase productivity of the employees. The employees have the same number of customers that have to have contracted items to be done on a monthly basis. The things the customers need done would not be billed until the work would be completed. The company wanted to have billing increases so management decided to attach bonuses to the total dollar amount each employee had each month. If the employee meets or exceeds the amount set by management, the employee would be entitled to part of the bonus pool which could be determined by a percentage factor system linked to dollar amounts of work billed. What would be unethical is if an employee was always behind on the scheduled work for the customer and still gets a portion of the bonus simply because the employee met the billing amount. What would make this exquisite would be to add certain incentives to ensure not only do the employees meet the billing amount, but also to ensure they are on time with the scheduled work to be completed to be able to qualify for the bonus or a portion of it. By having this type of incentive in place, the company can ensure the goals of the company, which could be customer perspective, are being met. The customer and the financial performance measures are tied to the compensation package (Arveson, 2002).
Another different type of unethical behavior that could occur if scandalous performance measures are picked would be at the upper management level. Cutting costs for a company is very important to management because that usually means an increase in company profits, this should not be done if it will compromise the quality of the products or affect the employee's morale in a negative arrangement. In almost every company, labor is probably the biggest crop of a company's operating costs. If the supervisor or a member of management were to persuade by offering bonuses or other incentives to other managers to reduce costs for the purpose of increasing the company's rep operating income, it would be simple for the manager to go after labor first. The problem would then reach in of having fewer employees to do the work, which in turn, the quality of the products for the customer could suffer. Also the workers who did not obtain let go would have lower morale because they are being expected to produce the same quality of work with less help, this could lead to the employees finding a different company to work for. Even though this would cut costs for the company, it would hinder customer needs being met. This type of incentive would be good for the manager to a certain degree, but it would be very awful for the company, which could lead to bigger financial problems and or concerns for the company (Arveson, 2002).
There may be some companies around that choose only one performance measure to gauge how the company is improving. The quandary with that is, it may invite unethical behaviors by the company's staff by trying to just earn as much money as possible with no thoughts of trying to improve the company's value. What a company may want to do is install a second performance measure. If a company does add the second performance measure they could improve production and improve quality of their products and improve their customer service by not slowing down the process of the customers having their needs met with the products they need and want. Even if production was to increase to an acceptable level for the company's procure income perspective, you could have dissatisfied customers, which could cause sales of the products to descend and that will afflict the company's bottom line for profit. By a company including performance measures to increase production and customer satisfaction, the outcome for the company would be viewed in a more positive light and more than likely the areas the performance measures were installed for would be as high if not higher than what management wanted to commence with (12manage, 2009).
As the President of Sparklin Automotive Company, there is something I believe you could install that could put Sparklin Automotive Company in a better, but different light. You could tie the compensation system to the correct performance measures, which is a given, but why not try to put them in such a intention that may encourage the employees of Sparklin Automotive Company to work hard to meet the Company's goals and objectives. You could add that element of complete company success to individual employee success as compensation or incentive package, this more than likely would benefit the employees, customers, and the company. You could offer stock options to employees as well as bonuses or other items that could be a motivator. An example of what I am talking about would be to give bonuses to your staff without regard to position if the company's net income climbs to a pre-determined level plot by you throughout the month or year. This type of incentive program could support your employees to stay here at Sparklin Automotive Company, which saves on the turnover rate which costs more money with recruitment, training, and time. You could also put some stipulations that the pool is a progressive type bonus pool which could keep the employees motivated and they will strive to hold working at that level. This also ensures the pool of bonus money stays at a certain level and the only change that would occur is by an increase in the money.
With this type of compensation, you as the President of Sparklin Automotive Company could offer stock options to the employees instead of money at some point during the year or when employees near certain stages. This will also have desired performance measure achievements as well. What you would have to peek at is ownership options given to employees could result in more financial success as well. When the employee gets stock in Sparklin Automotive Company, they have fair became or received some ownership within the company, this could cause the employee to work harder because an improvement in the financial status of the company means an increase in the employee's stock. The employee would plan how their work ethic directly has an impact on their own money and could actually eliminate some unethical behavior. The reputation of the company is important because it affects everything and everyone involved with the company. This can also be contagious because an employee may decide that they must and want to do what is right all the time because the company is doing what is fair by them and they (employee) may not do anything to hurt the money that is coming into their pockets. It is a get for both the employee and Sparklin Automotive Company.
Company leadership can eliminate unethical behavior before it happens; they honest need to be a miniature creative when creating an atmosphere where employees would not really want to have unethical behavior because they will feel they could ruin a good thing that they currently gave working for Sparklin Automotive Company. The company's culture is built from shared values, usually from the owner, the beliefs and norms that the owner believes would influence the thought process and behavior of all employees that would ever work for the company. These cultural items could and more than likely will set the tone for how the employees would interact with each other and could change notions of employees committing unethical behavior violations as well. Influencing employees to do things the right contrivance, management would also be promoting ethical behavior by everyone, it would be viewed as the trait the company accepts and would eliminate any misuse of the compensation system set up to improve operations throughout the company. With this type of atmosphere in place, employees may be more willing to recognize unethical behavior and bring these behaviors to the attention of management so it will not flow over and cause more problems for other employees or for Sparklin Automotive Company. So if a company such as Sparklin Automotive Company promotes hard work and ethical behavior by everyone in the company, the compensation system has a better chance of being successful (Niven, 2006).
Using the "Balanced Scorecard Performance Measures" to develop a compensation system which is defined as a system that something is given when something is done, such as bonuses or straight line pay, must be linked by the strategies with the incentive program to ensure it has a chance to be successful. In order to consider this successful, the company and the employee must strive to catch the company's strategies, goals, and objectives regardless if it is production increase, reducing costs, or improving customer service, they all need to work towards them. As management, performance measures must be quantifiable in order for them to be gauged so they can do if things are improving, or if they need to be improved. One way customer service can be gauged is with an increase of delivered products or less returns of company products. Internal process perspectives for Sparklin Automotive Company can be measured by the number of spark plugs manufactured or the amount of hours that would be needed to effect a certain amount of spark plugs. The financial perspective is usually measured by what has already happen, but it can be used to effect changes for the next evaluated period. What must be remembered, not one performance measure should suffer to improve another, and this will just cause this type of action to continue. Any of the systems installed must be fair to the employee and the company to ensure unethical behavior does not happen (12manage, 2009).
In conclusion, I have provided the needed information on developing a compensation system using the "Balanced Scorecard Performance Measures" of financial perspective, customer perspective, internal process perspective, and learning and growth perspective. I also provided the information on what compensation system is as well as what could be used to attend create one for Sparklin Automotive Company. I also have I have described how using the wrong compensation system that the company could be faced with unethical behavior from all levels of employees from Sparklin Automotive Company, there was also information on how to recognize it, prevent it, and install some measures to get all employees to help eliminate it before it happens. This information will be good to the President of Sparklin Automotive Company (CTUO, 2009).
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References
Arveson, P. (2002). The Ethics Perspective. Retrieved September 19, 2009, from http://www.balancedscorecard.org/TheEthicsPerspective/tabid/127/Default.aspx
CTUO, (2009). Applied Managerial Accounting. Retrieved September 17, 2009, from Course Materials Web site: https://campus.ctuonline.edu/MainFrame.aspx? ContentFrame=/Default.aspx
Niven, P.R. (2006). Balanced scorecard step-by-step: maximizing performance and maintaining results [Second Edition]. Retrieved from http://books.google.com/books? id=-nLWPSiBUbgC&pg=PA18&lpg=PA18&dq=performance+measures:+financial,+customer,+internal+process,+and+learning+and+growth&source=bl&ots=NoLeg5M5gA&sig=FDNx2FrJxj-piOWHRzIouA9zrVk&hl=en&ei=sUm1SrDDJIraNsjHvNoO&sa=X&oi=book_result&ct=result&resnum=1#v=onepage&q=performance%20measures%3A%20financial%2C%20customer%2C%20internal%20process%2C%20and%20learning%20and%20growth&f=false
12Manage (2009). Balanced Scorecard. Retrieved September 17, 2009, from http://www.12manage.com/methods_balancedscorecard.html
