Balance Scorecard and Ethical Issues of Performance Measure and Compensation System - Assignment Example

? Balanced Scorecard and Ethical Issues SAC President SAC Financial Analyst February 10, Balance Scorecard & Ethical Issues of Performance Measure and Compensation system Theoretically, Balance Scorecard (BSC) can be referred as a measurement tool through which an organization can transform its vision towards tactical planning in order to attain its determined business objectives from four perspectives, i.e. its financial perspective, customer perspective, procedural perspective or internal business process and innovation or learning and growth perspective. Through this measurement tool, organizations are often observed to influence their employees towards enhancing their individual performances and thus establishing the overall goals and objectives. It has been observed that majority of the firms utilize BSC in order to evaluate the ‘balance’ existing between its compensation plan and the performance measures over a certain period of time which further assists the organization to design effective strategies (Ittner, Larcker, & Meyer, 1997). Performance measurement facilitates managers to evaluate the outcomes of the overall organization as well as employees’ operational activities. Performance measurement also depicts the effectiveness of resources and the possibilities through which the activities and the resources satisfy organizational missions and objectives in a rational manner. Recent researches have often regarded BSC as a management tool which can deliver successful and well-documented outcomes (US Department of Energy, 2013). However, when measuring the attributes considered in the BSC framework, various ethical issues can also be observed to disrupt its validity as well as the reliability of the overall evaluation process outcomes. As stated by Bieker & Waxenberger (2002), the BSC approach lacks in considering the wide group of stakeholders including the community members who can also impose significant influences on the organizational performances. Thus, by ignoring the organizational responsibilities and its performances towards the stakeholders, business incorporations may have to witness significant ethical concerns when applying the mechanism of BSC. Unethical Behavior As A Result of Wrong Performance Measures Majority of the companies in today’s contemporary era, evaluate performance indicators in order to improve the overall performance of the organization and directly tie with the compensation system which comprise various aspects such as customer satisfaction, cost of the products and quality of the services offered along with providing job satisfaction among the employees. It is in this context that as the BSC framework focuses on a multidimensional approach to performance measurement, in majority companies, managers attempt to use this particular framework extensively (Lichiello & Turnock, 2006). With due consideration towards the critical viewpoint obtainable through the application of BSC approach, it can be regarded as an appropriate measurement tool through which Sparkling-Automotive Company (SAC) can tie its the compensation system with performance and thus enhance efficiency in its overall business process. However, SAC should also focus on recognizing the limitations of applying the BSC framework prior to its implementation for the purpose of its performance management. As stated by Butler, Henderson & Raiborn (2011), although the framework inculcates a multidimensional approach towards measuring performances of an organization, incorporation of sustainable issues, such as environmental concerns and stakeholders interests make the evaluation process quite complex. Owing to this particular limitation, managers often have to face obstructions in detailing appropriate and almost accurate information relating to the performance measures. Furthermore, as explained by Rillo (2004), when measuring the cause-effect relationship between the implemented strategies and obtained outcomes through organizational performances, BSC lacks the ‘dimension of time’ which might reveal incorrect measurement outcomes. Hence, based on such incorrect measurements, the managers are also likely to develop bias or inappropriate compensation system which can further cause unethical behavior within the workplace. In other words, unethical behavior within the workplace can occur if mutual relationships do not exist between the management and employees, fundamentally due to improper compensation system. Contextually, if the compensation arrangement is not reasonably fair for all the employees due to the limitations or inadequate application of the BSC framework, they tend to follow their personal objectives rendering minimum or insignificant consideration towards organizational purposes regarding job responsibilities (Lichiello & Turnock, 2006). Thus, concerning the limitations of BSC, it can be stated that SAC should focus on utilizing the performance measurement framework from a critical perspective to develop a compensation system with the aim towards maintaining equality among all the employees through which the chances of unethical behavior can be mitigated within the workplace. Company Avoidance of Unethical Behaviors SAC can avoid unethical behavior by demonstrating effective leadership strategy in applying the BSC model. In order to avoid immoral behavior within the workplace, SAC’s managers should be creative towards applying the BSC approach by developing sustainable working environment where employees decipher high degree of morale and loyalty towards the attainment of the organizational objectives. This work environment should make the employees of SAC aware regarding their job responsibilities and also assist them to understand the organization’s expectations from their performances. Moreover, the work environment should construct in a way which can enhance cooperation amid the management and the employees especially regarding the compensation system. The work culture of SAC should be developed by considering values which are mutually shared among the company and its employees. Contextually, in order to establish ethical behavior within the workplace, managers ought to understand the employees’ values, needs and preferences in accordance with their job responsibilities. Additionally, the management of SAC should create unique compensation systems by considering internal procedures, extensive customer supports and learning & growth perspectives which are principally included in the BSC model in order to influence every level of employees to deliver highest possible level of performance. It is worth mentioning in this context that as the BSC model is often criticized to render insufficient significance towards the evaluation of the data reliability and validity, a simultaneously approach can be taken into account by SAC to measure the performances of the employees considering the ethical aspects (Henri, 2011). From a critical perspective, it can be stated that managers should render due regards to the evaluation of time when measuring the performances which should be based on the current operations rather than focusing on the past activities. Moreover, checking and re-checking the data validity and reliability to be used in the measurement process shall also be considered as vital when affirming almost accurate and unbiased information based on which the compensation system might be developed. To be specific, when applying the BSC method, managers should aim at generating highly reliable and just information which can further assist in mitigating any king of inappropriateness in the compensation system designed and thus mitigate the probable chances of unethical behavior within the workplace (Henri, 2011; Rillo, 2004). Appropriate Performance Measures Tied to Compensation As often argued in the recent studies, appropriate compensation system based on just and accurately measured performances play a vital in developing an ethical environment within the workplace of organizations. On the contrary, existence of a certain degree of biasness in the compensation system applied within an organization is quite likely to lead towards employee dissatisfaction causing a gap between the management and the workforce which can in the long-run increase the chances of unethical behavior amid the organizational structure. It is worth mentioning in this context that if SAC can effectively co-relate the information obtained through performance measurement applying the BSC model with its compensation system in an ethical manner, the company shall be able to efficiently influence its employees’ performance towards the attainment of the predetermined business objectives. Moreover, with the help of this co-relation system, the company shall also be able to encounter its objectives in an appropriate manner so that every employee can obtain benefits within their respective workplace on the basis of their performances which will be justifiable transparently. As a matter of fact, it is the core responsibility of the managers of SAC to frequently measure the performances of the employees taking all the influencing factors into concern such as the occurrence of technical disturbances and legal or government interruptions when establishing effective compensation system through the proper utilization of BSC. Through this method the company can appropriately tie its compensation system with the performance measurement, hence making an appropriate use of the BSC system. Contextually, it is not mandatory that the performance measurement information will always reveal positive outcomes. It is in this context that negative outcomes can create reluctance among the employees and thus influence them towards rendering insufficient ethical consideration when performing their job responsibilities and causing unethical behavior within the workplace. Thus, SAC should ensure that the processes of compensation system and the performance measurement system are communicated to the employees maintaining adequate transparency. This will make the compensation system more justifiable among the employees as well as the stakeholders, which can further encourage their morale and loyalty encouraging them to accept the negative performance outcomes sportingly and assist them in performing better. Furthermore, in order to tie its compensation system with performance measurement technique, i.e. BSC, SAC can implement a unique recruiting and training program for the new as well as existing employees. During the recruiting process, SAC should select potential candidates whose attitudes reflect high degree of morality or ethical behavior towards the workplace. Subsequently, through the training program, SAC can deliver superior knowledge regarding the enhancement of job performances of every employee in an ethical manner. Moreover, SAC can also initiate unique reward systems through which the management can tie its performance measurement through BSC with proper compensation structure in an ethical manner. Furthermore, with the help of this compensation scheme, SAC can influence its employees to deliver more effort towards their respective job responsibilities and also assist the company towards the attainment of its objectives (Ittner, Larcker & Meyer, 1997). Summary When a company utilizes the BSC method in order to establish appropriate compensation arrangements, it should also emphasize on effectively correlating its performance measurement strategies. Through this way, the organization can ensure success towards the attainment of its objectives both in the long-run and in the short-run. Based on a similar concern, SAC and its employees should make efforts to understand and implement performance measurement strategies in an accurate manner which can further assist in developing an appropriate compensation system. As can be observed from the overall discussion, performance measure should be quantifiable and transparent for every employee so that they can effectively understand their respective job responsibilities and the consequent compensation system based on their performances. However, the BSC approach possesses certain limitations which needs to be considered when applying performance measurement techniques and likewise when developing the compensation system more effectively. For instance, internal procedural viewpoints of SAC can be evaluated by recognizing the time which are needed to produce sufficient amount of spark plugs taking into account all the controllable and uncontrollable influencing factors making the process more transparent and just. Similarly, customer service viewpoints of the SAC can be measured by analyzing quality of products delivered in comparison to the return obtained from the potential customers. Financial perspectives of SAC can be assessed in frequent intervals by indentifying past occurrences of the financial operations and relate it with the future financial uncertainties of the company. By taking into considerations with transparency and ethical considerations in relation to the overall perspectives of BSC, SAC should aim at establishing a proper compensation arrangement deciphering higher degree of equality and justness in order to avoid unethical behavior within the workplace. References Bieker, T. & Waxenberger, B. (2002). Sustainability Balanced Scorecard and Business Ethics. Developing a Balanced Scorecard for Integrity Management, Retrieved February 10, 2013, from Contribution to the 10th International Conference of the Greening of Industry Network database. Butler, J. B., Henderson, S. C. & Raiborn, C. (2011). Balanced Scorecard: Integrating Green Measures into Business Reporting. Management Accounting Quarterly, Vol. 12, No. 2. Retrieved February 10, 2013, from Imanet database. Henri, J. F. (2011). Performance measurement and organizational effectiveness: bridging the gap. Retrieved February 10, 2013, from faculty of administration Web Site: http://www3.fsa.ulaval.ca/html/fileadmin/pdf/Ecole_comptabilite/Publications/2003-04-3.pdf Ittner, C. D., Larcker, D. F., & Meyer, M. W. (1997). Performance, compensation, and the balanced scorecard. Retrieved February 10, 2013, from Compensation Analytics, LLC. Web Site: http://www.compensationanalytics.com/_resources/PerfCompBalScorecard.pdf Lichiello, P., & Turnock, B. J. (2006). Guidebook for performance measurement. Retrieved February 10, 2013, from Turning Point Web Site: http://www.turningpointprogram.org/Pages/pdfs/perform_manage/pmc_guide.pdf Rillo, M. (2004). Limitations of Balanced Scorecard. Retrieved February 10, 2013, from Mattimar Web Site: http://www.mattimar.ee/publikatsioonid/ettevottemajandus/2004/12_Rillo.pdf Read More