CASE STUDY Shell LTD Performance evaluation Shell uses a number of key performance indicators to evaluate the overall performance of Shell from a financial, efficiency, social and sustainable development perspective and collectively they represent the Shell scorecard. In addition, Shell monitors and manages the businesses by means of detailed parameters. The scorecard highlights four key performance indicators which together provide a summarized overview of Shells performance. These are measured on a quarterly and annual basis. As explained in the Directors Remuneration Report, the scorecard is also used to determine remuneration for staff, Senior Management and Executive Directors. Total shareholder return (25 per cent scorecard weighting) Total shareholder return (TSR) is measured as the sum of the difference between the share price at the start of the year and the share price at the end of the year, plus the cash value of dividends paid during the calendar year (gross and reinvested quarterly). The TSR is compared against other major integrated oil companies and provides therefore a benchmark of how Shell is performing against its industry peers. Net cash from operating activities (25 per cent scorecard weighting) Net cash from operating activities is a measure that reflects Shells ability to generate cash for investment and distributions to shareholders. The net cash from operating activities for scorecard purposes is adjusted for taxes paid on divestments. Operational excellence (30 per cent scorecard weighting) Within each of the different businesses, operational performance is measured by means of detailed parameters that are combined into a business dashboard. The four key operational indicators for the businesses are production for Exploration & Production and Oil Sands, LNG sales for Gas & Power, refinery availability for Oil Products and technical plant availability for Chemicals. Sustainable development (20 per cent scorecard weighting) As well as measuring financial performance and efficiency, Shell uses various indicators to evaluate Shells contribution to sustainable development. This discusses the priorities with regards to staff and environmental data such as greenhouse gas emissions, use of flaring and energy use in its businesses and assets. Safety remains a key topic for Shell and is measured by the number of injuries and fatal accidents. Required

1. With reference to the case above, analyze why it is necessary to use both financial and non-financial indicators when measuring the performance of a company. (10 mks)

2. Critically evaluate whether it would be possible to measure the performance of an individual against the above targets. (10 mks)