Dargeboard Services (DS), a listed company, provides facilities management (FM) services where it manages such activities as cleaning, security, catering and building services on behalf of its clients. Clients can outsource to DS a single activity or often outsource all of these aspects in a full service contract.

The mission of DS is ‘to give the shareholders maintainable, profitable growth by developing the best talent to provide world-class services with maximum efficiency.’

The board have asked the chief executive officer (CEO) to review the effectiveness of Dargeboard’s systems for performance measurement and management. She has turned to you to begin this process by considering the strategic performance dashboard of DS. She has supplied the most recent example in Appendix 1.

She wants a report to the board which will cover three aspects of strategic performance reporting at DS. First, it should address whether the current set of key performance indicators (KPIs) measure the achievement of the mission by showing how each one links to all or part of the mission. She does not want suggestions of new indicators. Second, taking each of the current indicators in turn she wants the assumptions underlying the calculation of the indicators examined. There has been a suggestion made in the press that DS is producing a biased set of results aimed to mislead the markets. This would then artificially boost the share price and so boost the value of the senior management’s share holdings. Third, the report should evaluate the other presentational aspects of the dashboard against best practice.

The idea of employee share ownership has always been at the heart of DS’ remuneration schemes. Its aim is to support an entrepreneurial culture and is a key differentiator in the market for new employees. The current reward system grants shares based on the appraisal of the individual by the line manager against vague categories such as leadership and entrepreneurship. The results of this scheme have been that only about 5% of staff received their maximum possible bonus in previous years and half of them received no bonus at all. Increasingly, this has led to the staff ignoring the reward scheme and describing it as ‘only for the bosses’ favourite people’.

In response to this, the board have been discussing methods of analysing and improving the rewards system at DS. One non-executive director suggested using Fitzgerald and Moon’s building block model. The CEO was asked to consider this as a project separate from the issues of performance measurement mentioned above. She will select suitable indicators from the dimensions but currently needs you to explain to the board what is meant by results and determinants in this context and how the dimensions link to standards and targets. Finally, she believes that there are two types of reward scheme which might suit DS and wants an evaluation of their relative strengths and weaknesses.

The scheme details are given in Appendix 2.

Required:
Write a report to the board to:

(v) Assess the two reward schemes given in Appendix 2. (12 marks)
Professional marks will be awarded for the format, style and structure of the discussion of your answer.
(4 marks)

Appendix 2
The CEO is considering two schemes, one based on the current scheme and a new scheme.

Scheme 1 (based on the current scheme)
The reward system grants shares in DS based on the appraisal of the individual by the line manager against vague categories (leadership and entrepreneurship). The line managers have been informed that their bonus will in turn be partly dependent on how well they perform this appraisal. The expectation will be that as a result, 20% of staff will receive their maximum possible bonus and 20% will receive no bonus.

Scheme 2 (the new one)
Under scheme 2, employee targets are to be derived from the strategic indicators depending on the employee’s area of responsibility. The senior management (with help from line management where appropriate) will cascade down the strategic indicators to the relevant operational or tactical level for that employee.

There will be five targets set by senior and line management in consultation and the employee will then get up to 50% on top of their basic salary as a bonus (10 percentage points for each of the targets achieved).