The recent discussion on “Soft Targets” (ie performance targets for Executive that are not financial) is raising questions over whether they drive benefits for shareholders.(See ABC story)
What hasn’t been mentioned are the marshmallow-like qualities of the measures behind the soft targets.
The gulf between the measurement approach of financial targets and soft targets is substantial. Financial measures are captured through a system we all know as accounting. Accounting has evolved since the days of ancient Mesopotamia and incorporates sexy(!) innovations such as ledgers, double entry book keeping, depreciation methodology and ERP software. Critically, accounting developed into a profession that has standards, including who can be an accountant (under a professional body) and how accounting should be undertaken.
It doesn’t just stop there however. Over-arching the profession is the legislation and regulation of the relevant governing bodies that reference and prescribe accounting treatments not the least being that public companies must have their financial statements independently audited.
What would a measurement system without such controls look like? Soft…
Soft measures are an eclectic bunch. They include employee engagement, customer satisfaction, safety, project completion, market share and carbon footprint but can be anything. The one thing they have in common is that the data collation is typically undertaken by an administrator role in the relevant functional area using a spreadsheet. Even advanced processes such as customer satisfaction data captured by tricked up IT solutions (think the smiley/sad face touchscreen sometimes seen near exit doors) invariably are controlled, via a reporting interface, by the relevant department of that organisation. How that data is validated, protected, interpreted and reported is different in each organisation but odds are the controls are further back toward Mesopotamian levels on the evolution scale.
With organisations increasingly recognising and rewarding the achievement of soft targets, motivation for unethical reporting is also increasing and the opportunity to do so vastly easier than the manipulation of hard financial measures.
With many millions of dollars, culture and reputation at risk, Boards need to be assure themselves of the veracity of the numbers they are presented with.
Mark is a Director and Principal Consultant of Pivotal Point Strategic Directions. Formerly he was a Strategy & Analysis Manager, Risk Manager and Internal Auditor and has hands on experience with wrangling soft data into useful information.