Page 79 - Bruce Ellig - The Complete Guide to Executive Compensation (2007)

Chapter 2. Performance Measurements and Standards 65

• Culture The embodiment of values and beliefs of the workforce on how work is to
be done. This is especially important when companies are attempting to change their
culture. Attitude surveys and behavioral tests are typical measurements.

• Intellectual capital It has been often cited that an organization’s workforce is its
only sustainable competitive advantage. The collective and interactive skills of an
organization’s workforce (and contractors) at all levels of the company are the major
factor in determining its creativity, productivity, and customer satisfaction. The first
two are obvious, the last less so. But empirical evidence suggests that customers are
most likely to be satisfied with a company if the employees (with whom they interact)
are also satisfied; the reverse is also true. Dissatisfied employees often result in dissat-
isfied customers. Therefore, employee work should be evaluated in terms of what they
know, what they do, and how they do it. The first is knowledge based, the second is
output based, and the third is value based.
Therefore, the motivational model which indicates that effort times ability equals
output needs to describe ability in terms of the knowledge (intellectual capital) and
traits (value systems) of each individual. Knowledge can be measured in terms of the
cost or hours of training (an input) or by skill-level testing. Effort is based in large part
on the willingness (i.e., commitment) to optimize one’s skills and values. This degree
of willingness is based on satisfaction with how the individual is being treated.
Demonstrated effort by the company to provide employment—not necessarily job—
security is a significant factor. Satisfaction levels can be measured by attitude surveys,
as well as by the number of charges of discriminatory treatment, and by turnover
statistics measuring the loss of people the company wants to retain.
A subset of intellectual capital is a measurement of the depth and readiness of indi-
viduals to step up to greater levels of responsibility. At the top of the organization, this
would be described as executive succession and possibly be a specific performance objec-
tive for the CEO. Another measurement might be the percentage of high-potential
employees on the payroll as of year-end.
• Intellectual property How strong are the copyrights and patents of the company?
When do they expire? What is the likely impact on revenue and earnings of the
company?
• Organizational objectives This covers a wide range of possibilities, from business
strategies (the “what”) to culture (the “how”). Business strategies might include orga-
nizational restructuring (acquisitions, divestitures, mergers, alliances, and/or joint
ventures) and planning issues (environmental compliance, product portfolio, technol-
ogy transfers, executive succession, and workforce diversity). Culture defines how
work is done and how people are treated. Ethical behavior is only the first rung in
developing a high-performance workplace. People must believe they are being
treated with dignity and respect and that all dealings are open and honest.
• Product/service innovation New product development can be examined at the
corporate as well as the divisional level. Some measure the cost of research and
development in relation to sales. This is an input model and does little in measur-
ing the effectiveness of the other expenditures. Some will measure the market
potential of new products in the pipeline. This is a market-share model. Others will
measure R&D costs over a period of time in relation to new sales (namely, the