Performance Management Shared Interest Group

  • 1.  Performance Management: What should a new COSO Governance Framework cover?

    Posted 12-03-2024 03:31 PM

    I'm the IMA's board member to COSO, the Committee of Sponsoring Organizations (IMA is one of 5 sponsoring organizations), that has published the Internal Controls Integrated Framework, the Enterprise Risk Management Framework, and the Fraud Risk Management Guide.

    COSO is now in the process of developing a Corporate Governance Framework that builds on and employs its internal control and risk management framework to ensure good governance permeates the organization from the Boardroom to the front lines.   Many governance frameworks focus only on the board of directors and board management.

    Part of the Corporate Governance Framework will have at least a section on Performance Measurement for the various levels of management.  I would value your input on the following questions:

    1.            What have you seen go wrong with performance metrics for executives and managers?  How did it contribute to poor governance, performance, and organizational culture?
    2.            What have you seen go well with performance metrics for executives and managers?   How did these enhance organizational culture and performance?
    3.            What Principles should a corporate governance framework establish to guide the creation of performance metrics that contribute and support to good governance and a high-performance culture?

    I greatly appreciate your thoughts.  The Corporate Governance Framework is under development now; your thoughts could make an impact on this project.



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    Larry White CMA,CFM,CSCA
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  • 2.  RE: Performance Management: What should a new COSO Governance Framework cover?

    Posted 12-07-2024 01:45 PM
    Edited by Hessel H. Brouwer 12-07-2024 01:45 PM

    This is a great question, and a big one. For brevity, a few thoughts:

    • One thing that can go wrong is focusing on the wrong metrics. A reason can be that the customer and its needs are not really understood. This problem gets aggravated when paired with a poor incentive system, particularly focusing on the wrong, overly specific, and ridig KPI's (the Wells Fargo cross-selling scandal comes to mind).  

    The following actions would address the issues mentioned above:

    • Conceiving a strategy addresses a strong customer understanding. Why do our customers do business with us rather than with our competition?
    • Focusing on relative measures like market share and profitability compared to industry peers
    • Having comprehensive measures like EVA, ROI, or the companies' share price rather than limiting to one-dimensional KPIs like Sales, EBIT, or number of customers

    Some principles come to mind:

    • Performance metrics are both industry specific and relative to the organizations' strategy, structure and culture. They need to be tailored.
    • Performance metrics should be closely linked to the strategy
    • Performance metrics align the interest of the management with the ultimate stakeholders (shareholders, members, …)

    We'll be talking about these topics a lot in this shared interest group. I love to hear what others think.



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    Hessel H. Brouwer CMA, CSCA
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  • 3.  RE: Performance Management: What should a new COSO Governance Framework cover?

    Posted 12-08-2024 08:29 AM

    Hessel,

    A very thoughtful response.   I'm curious what others think about EVA, ROI, or share price as a performance metrics?

    I find EVA useful, but some find it confusing and some academics tend to view it as a flawed metric.

    ROI often depends on the denominator of Investment - What should go into that figure?  Only capital expenses or all expenses?   What about fully depreciated assets - should they be factored in?  How?

    Share price is subject to fluctuations in the macroeconomic environment outside of individual control.  How do you address that?

    I don't mean to criticize the response, but there are naturally pro's & con's with every performance measurement.  I think it is valuable to discuss them.



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    Larry White CMA,CFM,CSCA
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    Original Message


  • 4.  RE: Performance Management: What should a new COSO Governance Framework cover?

    Posted 12-11-2024 02:04 AM

    I have read about some common issues that can arise with performance metrics for executives and managers, which can lead to unintended consequences and contribute to poor governance, performance, and organizational culture. 

    1. Overemphasis on Short-Term Goals: When performance metrics are heavily focused on short-term financial targets, executives and managers may prioritize immediate gains over long-term sustainability. This can lead to decisions that boost short-term performance but harm the organization in the long run.
    2. Inadequate Consideration of Qualitative Factors: Performance metrics that rely solely on quantitative data can overlook important qualitative factors such as leadership, innovation, and employee engagement. This can result in a narrow view of performance and neglect critical aspects of effective management.
    3. "Gaming the System" Executives and managers may manipulate metrics to meet their targets and secure bonuses or promotions. This can involve unethical practices such as inflating numbers, cutting corners, or shifting resources inappropriately
    4. Inconsistent Application of Metrics: When performance metrics are applied inconsistently across different departments or levels of management, it can lead to perceptions of unfairness and bias. This can undermine trust and morale within the organization


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    Akomu Okoh CMA, CSCA, CA
    Analyst
    Sugar Land TX
    United States[CompanyName
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