Scorecard Based Incentives: Better Balanced ... or Unbalanced?

In the wake of the success and popularity of the Balanced Scorecard, a performance planning and measurement framework brought to prominence by Robert Kaplan's and David Norton's landmark book by the same title, many organizations have taken the step of tying incentives to their own scorecards.

The broad acceptance and use of balanced scorecards owes much to their "holistic" approach to measuring business performance, which considers financial as well as a number of non-financial metrics, lead as well as lag indicators of success.  But is this balanced set of measures well-suited to employee incentive plan design? 

The answer?  It depends.  (Admit it, you saw that one coming...)

It's true, though.  It depends on what you truly want that incentive plan to do for you, in the scheme of your overall reward strategy (or even your total talent management strategy).

If you are looking to raise awareness and draw attention to the company's overall strategy and the multi-faceted nature of successfully executing that strategy, then a plan where award opportunity is extended across all scorecard measures will likely do that for you.  Coupled with strong communication and perhaps a recognition program that reinforces specific accomplishments in different scorecard areas, this kind of balanced incentive plan could be a solid choice for an all-employee plan, keeping the scorecard top of mind throughout the year. 

Alternatively, if you want the plan to drive significant performance improvements, your incentive award dollars will ultimately deliver greater returns if they are concentrated on just a couple of the most critical scorecard metrics.  Incentives are at their most powerful when they focus people's attention.  In this sense, and if this is your intent, an unbalanced plan that ties awards to just a few measures is likely the better fit.

So, when it comes to scorecard based incentives, as a general rule:

Balanced = dilution, best for raising awareness

Unbalanced = focus, best for driving performance improvement

Neither approach is right or wrong, to my mind.  It gets back to the question of what are you trying to accomplish with your incentive plan, and what role it is to play within your total reward strategy.

I'd love to hear from those of you with scorecard based incentive plans in place.  Would you agree with my assertions here?  What has your experience been? 

Comments

[Wally Bock]

Excellent post, Ann. The problem with balanced scorecards is that the more things you attempt to balance, the less any of them matter. Add to that the difficulty in determining which measures are both significant and within a team members control and what you often wind up with is complex system that doesn't have much effect on performance and hence that doesn't help contribute to strategy. Its been more than 15 years since the original book on this came out. At the time a wise client of mine commented "If you need a whole book to explain it, it probably won't work." After fifteen years of trying, was he right?

[Ann Bares]

Wally:

Great points - and with a direct corollary to rewards: the more things you try to reward, the less any of them matter. Like the comment one line manager made in response to a balanced scorecard incentive plan, "Gee, by the time you tie the incentive award dollars to all these measures, achieving any one of them is only worth a couple of bucks." Or, as one of my favorite phrases goes - to focus on everything is to focus on nothing.

Thanks for weighing in and sharing your thoughts!