Balanced Scorecard As the preceding descriptions indicate, any form of incentive pay has advantages and disadvantages. For example, relying exclusively on merit pay or other individual incentives may produce a workforce that cares greatly about meeting those objectives but competes to achieve them at the expense of cooperating to achieve organizational goals. Relying heavily on profit sharing or stock ownership may increase cooperation but do little to motivate day-to-day effort or to attract and retain top individual per- formers. Because of this, many organizations design a mix of pay programs. The aim is to balance the disadvantages of one type of incentive pay with the advantages of another type. One way of accomplishing this goal is to design a balanced scorecarda combination of performance measures directed toward the companys long- and short-term goals and used as the basis for awarding incentive pay. A corporation would have financial goals to satisfy its stockholders (owners), quality- and price- related goals to satisfy its customers, efficiency goals to ensure better operations, and goals related to acquiring skills and knowledge for the future to fully tap into employees potential. Different jobs would contribute to those goals in different ways. For example, an engineer could develop products that better meet customer needs and can be produced more efficiently. The engineer could also develop knowledge of new technologies in order to contribute more to the organization in the future. A salespersons goals would include measures related to sales volume, customer service, and learning about product markets and customer needs. Orga- nizations customize their balanced scorecards according to their markets, products, and objectives. The scorecards of a company that is emphasizing low costs and prices would be different from the scorecards of a company emphasizing innovative use of new technology.

PERFORMANCE CATEGORY	CRITICAL SUCCESS FACTORS	GOALS
		BASE (2%)	TARGET (3%)	STRETCH (5%)
Member service (40% of incentive pay)	Reliability (average interruption duration)	140 min.	130 min.	120 min.
	Customer satisfaction (index from quarterly survey)	9.0	9.1	9.2
Financial performance (25% of incentive pay)	Total operating expenses (/kilowatt-hour)	4.03	3.99	3.95
	Cash flow (% of investment)	75%	80%	85%
Internal processes (20% of incentive pay)	Safety (safety index based on injury rate and severity)	4.6	3.6	2.6
Innovation and learning (15% of incentive pay)	Member value (revenue/kWh sold)	Budget	10% state median	13% state median
	Efficiency and effectiveness (total margins/no. employees)	$534,400	$37,200	$40,000

Answer this question

Review the Balanced Scorecard [ Table 12.2] on p. 397 of your text. Why might a scorecard like the one noted in Table 13.2 be effective to measure a manager's contribution to the business and, in turn, his/her pay treatment?