Allied Electronics Corporation Ltd Linking Compensation To Sustainability Metrics Case Solution

2. Analysis Framework

Venter’s initiative should be analyzed on theoretical ground so that relevant recommendations can be made. In this way, specific problems can be conveniently pointed out, which will help in planning rectifying measures. There are three tests that Venter’s initiative needs to pass; it will assist Venter in making the right amends:

Test 1: Does it align with Strategy?

Test 2: Can it be Measured Effectively?

Test 3: Is the Measure Linked to the value?

Altron measures its employees’ performance based on 11 key factors. These factors include external factors, income/growth, cost/cash management, products / services, business partner relationship, customer relationship, human capital, transformation, environment, business conduct in a foreign operation, and corporate governance. Venter has translated all these factors into smaller measure so that they can be conveniently measured. Out of the 11 aforesaid 11 measures, only two are objective measures. Income / growth and cash/cost management are the two measures that are based on purely objective data. Interestingly, Venter had paid special focus on subjective measures to deem employees’ performance. The analysis will focus on these subjective measures as there are a number of problems that should be discussed.

The first test checks whether KPIs align with overall corporate strategy or not. Venter has translated its whole 11-themed strategy into smaller KPI’s, which means that compensation measures clearly inculcate the corporate strategy in self. The main purpose of this test is that it makes sure that every employee understands that which part/task is importance. One of the main problem that Venter faced was that employees were not keened about nine (out of 11) KPIs as they were purely subjective.

The second test was about the effectiveness of the measure, which means whether it is easy to judge the measures effectively. In the case of objective measure, they can be effectively measured, and there is a whole process available that managers can follow in case the measure cannot be judged effectively. The real problem is related to subjective measures as there is no thumb rule that can be used by managers in order to check whether objectives are being achieved effectively or not. These types of KPIs are mostly rated according to supervisor’s judgment and observation. In such cases, there are high chances of nepotism and biasness. Employees can make their supervisors biased by giving them personal favors. Analysis of exhibit 8 reveals that Venter has added new indicators in the year 2011, which were previously missing. However, there are still some (divided) KPIs that do not have a clear cut indicator. The scoring is mostly done of judgmental basis.