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Dear Workforce How Do I Design Bonuses For Financial Management Staff

I need to design performance measurements, which will be used to award bonuses to the financial management staff of our manufacturing company. What metrics should I use for the CFO, controller, accounting manager, and cost accountant?
July 11, 2003
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Related Topics: Variable Pay, Compensation Design and Communication, Performance Appraisals, Dear Workforce, Compensation
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Dear Searching for Benchmarks:

Traditionally, accounting departments have defined themselves in terms of theadministrative and transactional activities they perform for the organization.The bases for measuring the department's business contribution are typicallycommon activities such as financial reporting and budgeting. Consequently, theprimary indicators of department effectiveness are meeting report deadlines andreporting data accurately.
Arguably, these activities are necessary for making decisions to run thebusiness, but they demonstrate little direct impact on marketplacecompetitiveness. As a result, accounting staff bonuses are generally paid on nonvalue-added activities rather than on their impact to the business.
If you use a more contemporary approach to measure the effectiveness of youraccounting department, you will be better able to directly connect departmentinitiatives to bottom-line business requirements. This will create a morepowerful awards program because activities that solve core business problemslend themselves to meaningful and easily quantified performance measures.
In simple terms, there are three primary elements of this approach. One, youraccountants need to be clear about how they can use their skills, knowledge, andexperience to help the business be more competitive. They must define themselvesnot in terms of activities, but in terms of expertise that can be used to solveproblems that directly impact business results.
Two, the staff must identify major barriers to business success, and look forways to leverage their abilities in the interest of the business. To do thiswell, accounting staff members should meet with those in the manufacturingoperations to learn the issues most negatively impacting key business results.
Three, your accountants should develop a plan of action with those inmanufacturing to tackle some of the most meaningful challenges. An example ofhow this may work is as follows: Your accountants probably have expertise thatcould be used to help those in operations understand the financial impact ofcertain high-cost activities. They can further use this expertise to analyzethese activities, along with their root causes. Your accounting staff can thenidentify and collaborate on possible alternatives that would reduce costs to thebusiness. Successfully achieving such business-related outcomes then becomes the basis for awarding bonuses.
An accounting department that uses its staff expertise to solve core businessproblems directly impacting product or service quality, cost, delivery to thecustomer, or other business success indicators can easily demonstrate value fromwhich to determine appropriate bonus awards.
SOURCE: Kevin Herring, president, Ascent Management Consulting, Tucson,Arizona, Nov. 12, 2002.
LEARN MORE: Read Can Pay for Performance ReallyWork?
The information contained in this article is intended to provide usefulinformation on the topic covered, but should not be construed as legal advice ora legal opinion. Also remember that state laws may differ from the federal law.
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 The information contained in this article is intended to provide useful information on the topic covered, but should not be construed as legal advice or a legal opinion. Also remember that state laws may differ from the federal law.

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