According to a Towers news release, in the drive to improve measurement and make compensation practices more effective, organizations continue to adjust their annual incentive plans. For example, while nearly nine out of 10 companies rely on two or more performance measures, two-thirds now report using three or more measures.
While sales or revenue is the single most common financial performance measure, four of the next five most common measures are earnings- or profit-based, and cash flow is now tied for second most prevalent performance measure.
Finally, there appears to be a shift in how companies are setting performance expectations. A majority of companies now base goals on “expected business conditions.”
- Although the sum-of-targets approach to plan funding remains the most prevalent method, results-based funding now runs a close second.
- The most prevalent results-based funding measures are cash flow and operating income; by contrast, in 2005, net income was the most common results-based funding method.
More information is at http://www.towerswatson.com/united-states/research/1685