Analysis drives Performance
Numbers can mislead. Relative performance reveals the truth.
Indexing operating performance manages the company with market comparisons. Instead of measuring performance by target deviation, performance is measured as market deviation - market-oriented. With indexing operating performance, company performance is better evaluated because it shows performance independent of external factors such as economic or business cycles, the ups and downs of exchange rates and raw material prices and extraordinary events such as mergers & acquisitions.
Such external factors dilute the target and budget deviation analysis used in traditional performance evaluations which leads to false signals, especially in volatile markets. These misleading signals are avoided by indexing operating performance.
Obermatt CEO Dr. Hermann J. Stern has published a Financial Times Top 10 book on market-oriented management on this approach. There is also more information on indexing operating performance on our sister website of the non profit organization Obermatt Institute.
Methods of indexing operating performance
Indexing operating performance uses a range of tools to measure performance in a market-oriented manner. The principle is always the same. Instead of agreeing on goals that later serve as a reference point, performance is measured - as in sports - by how good the performance compares to other, similar performances.
Obermatt's indexing operating performance service offerings
Indexed compensation compares company performance with a market index. This indexed performance measurement motivates for profitable growth. Target-based compensation systems typically obstruct high performance because of the use of realistic, in other words average, targets.
Indexed strategy controlling expresses performance relative to the market which makes strategic controlling independent of the business cycle which classic strategic controlling cannot do.
Obermatt CEO Hermann Stern on more pay and more orientation towards the future
Entrepreneur and former public company CEO Douglas Günthardt speaks with Hermann J. Stern on relative performance measurement and management compensation. The exchange contains encouraging words, new insights and constructive criticism on the topic of promoting relative short and long-term executive compensation.
It covers the use of relative profit, relative growth, relative shareholder returns and - with a perspective on what’s to come soon - environment, social and governance performance compensation, the so called ESG bonuses.
Douglas doesn’t stop short on the question of how you can make executives want relative performance measurement. “It pays more” is Hermann’s simple yet often neglected answer. Most executives are overconfident, rendering their own targets excessively high and their variable pay below what they would be getting if their performance were compared relative to peers.
Outperformers such as SIKA were the first to understand this, now a well documented case study available for download.