The Case for Non-Financial Performance Metrics
It’s that time of the year when evaluating employee engagement, diversity representation, and customer satisfaction can be as daunting as purchasing your in-laws’ holiday gifts. It’s a mistake, however, to assume that these and other non-financial goals can’t be measured with enough certainty to influence incentive compensation, performance reviews, and business results.
Companies can be reluctant to adopt non-financial metrics in their incentive compensation calculations, given that these measurements offer less quantifiable links to business performance. They tend to rely on scorecards or “checking the box” without committing to set metrics that reflect goals and strategies.
Two industrial manufacturers have found measurable success in putting these types of metrics front and center in compensation plans and business strategies:
At Johnson Controls, focusing on non-financial metrics such as employee engagement, diversity representation, and customer satisfaction drove tighter alignment with strategic priorities. How did they do it? Read my report about compensation trends, in which I explain how less quantifiable metrics can support business performance and long-term corporate strategies.
Rockwell Automation turned to improving team performance as a way to boost flat sales and below-average profits. They built highly effective teams by focusing on five guiding principles: trust, healthy conflict, dedication, team accountability, and results. Addressing the five dysfunctions of a team also led to clearer action plans for driving performance improvement and ultimately increased operating earnings, sales, new products in the pipeline, and on-time delivery rates.
To learn more about trends influencing compensation, read my report. I also review how the rising U.S. dollar, the declining use of performance rankings, the link between CEO pay and business performance, and the falling popularity of stock options are shaping compensation.