![]() With appropriate board oversight, the company’s leaders should not allow stock price performance to so dominate the spotlight that it detracts from their focus on the business and its fundamentals and strategy. In addition, proactive outreach to major shareholders is sometimes necessary, creating a dilemma about how to communicate long-term imperatives for areas such as culture, innovation and customer experience when the stock price is depressed. Performance management should be linked to the storyline articulated in the communications to the street. Bottom line: Executives must be compensated and long-term shareholder interests must be preserved – two objectives that must be aligned. ![]() ![]() The challenge comes from managing the balance between short-term and long-term performance. More recently, sustainability objectives are being integrated into the performance management process as more institutional investors incorporate the linkage of corporate sustainability performance and financial performance in their rationale for evaluating investment and portfolio allocation decisions. The traditional strategic priorities relate to such matters as quality, cost, time, innovation, customer loyalty and talent strategy. For example, many organizations have yet to bridge the gap between efforts to attract and retain employees and efforts to engage and align them. ![]() Alignment of performance with the critical strategic priorities is both an imperative and a challenge. Performance management must embrace the appropriate metrics, given the strategy that management seeks to implement and expected investments. With that as a context, we are observing in the marketplace six important areas of emphasis for measuring performance: Many organizations use some variation of a balanced scorecard that integrates financial and non-financial measures to communicate what’s important, focus and align processes and people with strategic objectives and monitor progress in executing the strategy. The message is that, in today’s environment, the focus on performance must be anticipatory and proactive as well as reactive and interactive in focusing company resources on the pursuit of its performance goals. Effective performance management touches each of these themes by focusing outwardly as well as inwardly and looking to the future as well as to the present and past. Given the complexity of the global marketplace, the accelerating pace of disruptive change and ever-increasing stakeholder expectations, how should executive management direct and the board oversee the performance management process so that it is effective in driving execution of the strategy and incenting the desired behaviors across the organization?Īs the ultimate champion for effective corporate governance, the board engages management with emphasis on four broad themes: strategy, policy, execution and transparency. Like all processes, it can be effective or ineffective in delivering the desired value. Performance management is so integral to the functioning of executive management and to the oversight of the board of directors that it’s easy to forget that it, too, is a process. Performance relates to virtually everything important: execution of the strategy, the customer experience, investor expectations, executive compensation and even senior management and the board itself. Protiviti’s Jim DeLoach discusses one of the more pervasive issues falling within senior management’s and the board’s purview.
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