Executive compensation: firms weight bonuses towards non-financial measures
A growing number of U.K. companies are rewarding top executives on the basis of non-financial measures, according to a recent report by PriceWaterhouseCoopers. The trend is moving away from purely financial targets to include broader corporate activities like customer satisfaction levels, employee engagement and environmental measures. The study of executive pay at the UK’s top 100 FTSE companies revealed that 31 percent of executive pay packages were based on such criteria in 2006/2007, versus just 13 percent in 2005/2006. Conversely, the number of top UK firms offering annual bonus plans based exclusively on financial measures has halved in the past year, falling from 33 percent in 2005/2006 to 17 percent in 2006/2007.
This was bound to happen. Organizations are moving away from purely financial performance (which at the best is post-facto) to more comprehensive performance measurement like Balanced Scorecards (which take into account customer feedback, employee engagement and learning and innovation too). Once that happens it is quite natural that executive variable pay also starts getting linked to more than financial measures.
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