1. Why has Citibank introduced a Performance Scorecard?

The implemented performance scorecard specifies goals and measures manager’s

performance in 6 areas:
 Financial measures
 Strategy implementation
 Customer satisfaction
 Control measures
 People
 Standards
The primary purpose of the balanced scorecard is to set goals and allow managers to
complete well-rounded performance reviews using both quantitative and qualitative
measures. While financial measures are important in analyzing performance of the
bank, they do not provide any insight into non-quantifiable measures that can be equally
important in performance assessment. In addition, the balanced scorecard forces
employees to adopt a broader view of the business and concentrate not only on
financial measures, but on measures that are truly important to the success of the
company. In the service industry, customer satisfaction is a particularly important
measure in determining how the company is doing. A high level of customer service is
a significant component of Citibank’s strategy in California. Frit Seegers sees it as a
leading indicator of future financial performance of the bank. From the past
experiences, it was determined that customer satisfaction ratings do not follow the same
pattern as financial performance, and it is necessary to measure customer satisfaction
separately.
2. Assume you are Lisa Johnson, complete Exhibit 1 to evaluate James’ performance.
Provide an explanation for each one of the seven performance areas evaluated.

 Financial measures: Above Par

The financial performance of James’ branch has consistently exceeded
management expectations for the last 4 years. This year was no exception.
James exceeded financial goals by 20%, thus ranking the branch #1 in the
marketplace.
 Strategy implementation: Above Par
This is the rating James received in quarters 2, 3 and 4. The branch met or
exceeded its growth goals in the business, professional and retail segments.
(The scorecard does not indicate the goals for this measure, which makes
analysis less dependable as we have to rely on comments only.)
 Control measures: Par
This measure was assessed only in 3 quarters, and in all 3 quarters the
branch scored above par. Even though James works hard on making sure
his branch operates in compliance, there is still some room for improvement
in this area, and James can implement several measures to lower the
operating and fraud losses sustained by his branch.
 People: Above Par
James is an excellent people manager. His performance is consistent in this
area and always exceeds expectations.
 Standards: Above Par
James is a well respected leader that has high standards for himself and
people he employs. He continually works on improving himself and his
employees. He is involved in the community and encourages the same from
his employees.

 Customer Satisfaction: Below Par

This is a measure that can potentially cause the most controversy as James is
concerned with the survey that is used to asses customer satisfaction. In two
quarters, James scored below par on customer satisfaction. However, he identified
the improvement opportunities and substantially improved service scores by the
end of the year.
 Overall Evaluation: Above Par
We understand that according to current policy James can not get an above par
overall rating due to a below par score on the customer satisfaction measure.
However, we will disregard the policy in this case due to several reasons:
 This is the first year the balanced scorecard was implemented. It will take some
time to insure that all the areas are measured appropriately.
 James’ concerns about adequacy of the survey used to measure customer
satisfaction might be valid. Management should review the survey and get some
input from the branch managers on what indicators should be used to measure
customer satisfaction.
 The current review process raises some concerns as well. Presently, a branch
manager’s supervisor subjectively assesses performance in the non-quantifiable
areas. The process can be improved by allowing the manager to self-asses his
own performance and discuss it with his superior. This will allow the process to
be less subjective. The manager will get an opportunity to defend his
performance if he does not agree with the assessment of his superior.

 If we give James an overall rating of par, disregarding his hard work, it will lower
the morale of one of our most successful managers and will possibly result in
lower performance in the future, jeopardizing the performance of the #1 branch in
the marketplace.
 Management has a valid concern that if James receives an above par score on
his evaluation, employees might think that management disregards non-financial
measures during the evaluation. However, it is easier to reiterate the importance
of non-financial measures than to negate the effects of low morale in James’
branch. Management should communicate the importance of qualitative
measures in the balanced scorecard and the fact that it will be taken into full
consideration during the performance review after management makes sure the
survey is well suited to measure a customer satisfaction.
3. How would you communicate the decision to James?
James should be aware that his concerns with the customer survey and
consistently exceptional performance were the main reason for management’s
decision to give him an overall above par rating. He should also be told that in the
future he will not get an above par rating if he fails to score par on all the
measures. James should be aware that management will not disregard non-
quantifiable measures in the future as steps are being taken to insure that they are
measured appropriately.
4. What do you think James will do after receiving the communication?
If James is aware of all the things mentioned in the answer to the previous
questions, he will continue to consistently exceed the expectations of his superiors.
Since James will see from his performance evaluation that management values his
efforts, he will continue to work as hard or even harder than before to ensure that
his branch remains
#1 in the marketplace.
5. Would you roll-out this performance scorecard to other regions at
Citibank?
The balanced scorecard should not be rolled-out to other regions at Citibank
without some revisions. James has already raised some concerns about the
adequacy of the survey that measures customer satisfaction. His main concern is
that the survey measures not only branch services but also centralized services
such as ATMs that are out of the control of a branch manager.
The survey can be revised in order to better meet the performance evaluation
needs. It is possible that several surveys will need to be developed in order to better
assess the different branches based on different types of customers served by them.
This will result in increased costs but will allow for closer gauging of the
performance of the bank and setting more defined performance goals for the
branches.
The concerns about the current review process were also raised above. The
manager should be given an opportunity to asses his own performance on non-
quantifiable measures in order to make the performance review less subjective. In
addition, the discussion of the manager’s performance with his superior will ensure
that the manager is satisfied with his performance evaluation and will result in
increased employee morale.

Has Citibank introduced a Performance Scorecard?

The implemented performance scorecard specifies goals and measures manager’s
performance in 6 areas:
 Financial measures
 Strategy implementation
 Customer satisfaction
 Control measures
 People
 Standards

The primary purpose of the balanced scorecard is to set goals and allow managers
to complete well-rounded performance reviews using both quantitative and
qualitative measures. While financial measures are important in analyzing
performance of the bank, they do not provide any insight into non-quantifiable
measures that can be equally important in performance assessment. In addition,
the balanced scorecard forces employees to adopt a broader view of the business
and concentrate not only on financial measures, but on measures that are truly
important to the success of the company. In the service industry, customer
satisfaction is a particularly important measure in determining how the company is
doing. A high level of customer service is a significant component of Citibank’s
strategy in California. Frit Seegers sees it as a leading indicator of future financial
performance of the bank. From the past experiences, it was determined that
customer satisfaction ratings do not follow the same pattern as financial
performance, and it is necessary to measure customer satisfaction separately.

James Performance
 Financial measures: Above Par
 Strategy implementation: Above Par
 Control measures: Par
 People: Above Par
 Standards: Above Par
 Customer Satisfaction: Below Par

• Overall Evaluation: Above Par

• This is the first year the balanced scorecard was implemented. It will
take sometime to insure that all the areas are measured
appropriately.
• James’ concerns about adequacy of the survey used to measure
customer satisfaction might be valid. Management should review the
survey and get some input from the branch managers on what
indicators should be used to measure customer satisfaction.
• He has done exceptionally well across the scorecard and though he is
seen as struggling in the area of customer satisfaction, he is
consciously making efforts to over come it.
• Lets not forget the parameters which are beyond branch’s control are
also detrimental for customer satisfaction score.

How would you communicate the decision to James?

James should be aware that his concerns with the customer survey and
consistently exceptional performance were the main reason for management’s
decision to give him an overall above par rating. He should also be told that in the
future he will not get an above par rating if he fails to score par on all the
measures. James should be aware that management will not disregard non-
quantifiable measures in the future as steps are being taken to insure that they are
measured appropriately.

"Citibank Case Analysis"

Introduction:

Through reading the article titled "Citibank: Performance Evaluation" and

performing my own in-depth case analysis, I was able to analyze the issues
Citibank California was confronted with and determine possible solutions to help
run their business more successfully. Although Citibank is a well-run corporation
that made necessary improvements in an effort to gain a competitive advantage
over their main competitors, Bank of America and Wells Fargo, a main area that
needs improvement is clear: customer satisfaction. As Frits Seegers, President of
Citibank California, identified, without improving customer satisfaction, the
extreme success that Citibank was experiencing through financial profits, would be
extremely temporary. As a result of reading this article and through concepts
learned in class and through the text, I have developed some recommendations
that may help Citibank in the future.
History:
James McGaran was the manager of the most important of the 31 Los Angeles area
Citibank locations and as a result, his Performance Review was perhaps the most
important for the expected success of Citibank California. Located in the financial
district, the branch had a staff of 15 people, revenues of $6 million, and $4.3
million in profit margin. With a diverse customer base, this specific branch reached
many different business people as well the typical home banker. Competition for
the branch was extremely intense with competitors branches within a block of
McGaran's branch.
McGaran's performance reviews exceeded expectation every single year and he
delivered impressive financial statistics in yearly reviews. However, when the
compan ...

Citibank Performance Evaluation Case Study

1. Analysis of the Citibank’s new evaluation system

In order to deeply understand the Citibank’s new performance evaluation,
first we need to clarify the purpose of Citibank’s introduction of the new
performance scorecard. It’s basically an attempt to highlight the importance
of a diverse set of measures instead of the single financial performance in
achieving the strategic goals of the division. Specifically, from Frits Seeger’s
 point of view, the high service quality strategy and other dimensions were
critical to the long-term success of the franchises. The customer satisfaction
and strategy implementation indicators, therefore, were introduced into the
new performance scorecard.
Consequently, the new scorecard has consisted of six diverse perspectives.
And the objective for implementing the scorecard performance measurement
was to figure out what need to be done to meet the measurement
perspectives from a balanced view. Then the targets also have been
established for each perspective, for example the customer satisfaction has
been set for achieving a rating of at least 80 in 1996.
However, looking deep into Citibank’s new evaluation method, we could spot
several big weaknesses:
2.
- Subjectivity plays an important role in the new evaluation system. First
there are two ratings related to people and standards that lack an
appropriate objective indicator and largely be determined by branch
manager’s superior. This leak leaves a big room in the evaluation system for
causing unfair results according to personal relationship between branch
managers and their superiors and other drivers instead of real performance.
However, from the case, we could hardly know what James really did on
these two perspectives because his high ratings on these two factors were
significantly due to the Lisa Johnson’s one-sided praise. Another issue is
how the quarter evaluations combine into the annual evaluation. The
supervisor has way too much power to change the annual...

Citibank: Performance Evaluation

CASE :“Citibank: Performance Evaluation”
Harvard Business School 9-198-048 rev: October 14, 1999

The Performance Scorecard: a strategic management tool

Frits Seegers, President of Citibank California, is convinced that “in a
competitive marketplace where businesses compete for customers, customer
satisfaction is seen as a key differentiator and increasingly has become a key
element of business strategy”1. Fulfilling customers’ expectations is a critical
issue for the long term business sustainability and profitability. This
realization is what underlies the decision of the top management to develop
and complete the former Citibank’s performance evaluation system mainly
based on financial measures. In 1996, a new Performance Scorecard
integrating non-financial measures, including a customer satisfaction
indicator, was introduced in order to be used as “a central management tool
to implement [high service] strategy and evaluate performance.”2 This is a
sign of great.........

.... willingness from the California Division to broaden its business vision
and control. This effort to improve the effectiveness of the organization as a
whole is aligned and can be bring closer to the McKinsey 7Ss model. Indeed,
“the model clearly emphasizes to managers that the soft side of managing is
just as important as the hard side. Peters and Waterman suggested that the
 7-S model, which included both soft as well as hard issues, was a more
suitable framework than the rational model”3. Frits Seegers has obviously
understood that managing people with financial measures only (rational
side) would not be enough to guarantee “the long term success of his
division”4. All seven of S’s -strategy, structure, systems, skills, staff (people),
style, and shared values (culture) – are interconnected variables accounting
for effectiveness5 as are the six performance measures integrated in the
Performance Scorecard – strategy implementation, financial, control, people,
standards and customer satisfaction6....

Citibank: Performance Evaluation

CASE
“Citibank: Performance Evaluation”
Harvard Business School 9-198-048 rev: October 14, 1999

The Performance Scorecard: a strategic management tool

Frits Seegers, President of Citibank California, is convinced that “in a competitive marketplace where
businesses compete for customers, customer satisfaction is seen as a key differentiator and
increasingly has become a key element of business strategy”1. Fulfilling customers’ expectations is a
critical issue for the long term business sustainability and profitability. This realization is what
underlies the decision of the top management to develop and complete the former Citibank’s
performance evaluation system mainly based on financial measures. In 1996, a new Performance
Scorecard integrating non-financial measures, including a customer satisfaction indicator, was
introduced in order to be used as “a central management tool to implement [high service] strategy and
evaluate performance.”2 This is a sign of great
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willingness from the California Division to broaden its business vision and control.
This effort to improve the effectiveness of the organization as a whole is aligned and
can be bring closer to the McKinsey 7Ss model. Indeed, “the model clearly
emphasizes to managers that the soft side of managing is just as important as the
hard side. Peters and Waterman suggested that the 7-S model, which included
both soft as well as hard issues, was a more suitable framework than the rational
model”3. Frits Seegers has obviously understood that managing people with
financial measures only (rational side) would not be enough to guarantee “the long
term success of his division”4. All seven of S’s -strategy, structure, systems, skills,
staff (people), style, and shared values (culture) – are interconnected variables
accounting for effectiveness5 as are the six performance measures integrated in the
Performance Scorecard – strategy implementation, financial, control, people,
standards and customer satisfaction6....

Citibank:Performance Evaluation

I. Critical evaluation of Citibank performance evaluation form:

Citibank corporate strategy: focused on combining excellent customer service
strategy along with relationship banking to build a profitable competitive franchise.
Customers were offered the convenience of choosing the type of service delivery,
whether personal or remote. But as high end customers become more and more
valuable to the bank, their service expectations also went up. Increased service
demands included broad array of financial products and careful personal attention.
Thus improving customer satisfaction was realized to be of paramount importance
for a successful future financial performance.
President of Citibank California, Frits Seegers and top managers were dissatisfied
with the past performance evaluation measures which mainly consisted of financial
measures only. They took steps to improve the important competitive dimensions
which they thought were critical to long term success of the franchise. Thus,
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California division chose to broaden its business vision by integrating non-financial
measures to develop a Performance Scorecard which was implemented in 1996 and
was a central management tool for evaluating strategy and evaluating performance.
Financial district Branch strategy: After joining Citibank James McGaran went
through a series of quick promotions to become Manager of largest and toughest
branch in the division within seven years. Despite a highly diverse demanding
customer base and stiff competition in face of two competitors located at walking
distance, James delivered outstanding financial records for four straight years in a
row. Even with limited staff of 15 people branch revenues and profit margins were
high. He successfully operated the most important, challenging branch amongst the
31 branches in the division and enjoyed a sense of accomplishment in his job. James
is supervised by hands on area manager Lisa Johnson.

Performance Evaluation Form: Performance...

Performance Evaluation

Evaluating performance as well as development are important aspects and need to be included on the evaluation

form. It is critical to both the employer and employee to understand what is being evaluated, how the employee is

being evaluated as well as the ability to add additional information which the employer and employee will find

useful.

Feedback is both important for the employee and the employer. The employee needs the ability to comment on

their evaluation. The employee may have an issue to dispute on the evaluation, and this would be the 1st step in
that process. Additionally, the employee may have information which might adjust the evaluation. An example is

if a job was transferred to another person and the evaluation did not take that into account. Likewise, the

employer may need to give written descriptions of both positive and negative actions which contributed to the

employees score or evaluation. After feedback has been given, the employee should be given a copy of the

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evaluation which they can keep for their files. The information given on feedback may allow the employee to
receive additional training, a promotion, or used to implement something which would benefit the company
overall.
The purpose of the evaluation is to allow the employee receive constructive feedback on how they are performing
their position. It is also important that feedback should be an ongoing process, not just once a year or twice a
year. You can use the evaluation to assist the employee in creating a plan to improve their performance or to work
on advancing their position for a promotion. Training will be provided on regular basis. Staff will be allowed
depending on a variety of circumstances to received advanced training to those who excel in their positions.
Likewise training to improve current skills will be offered as well to all employees so they may improve their
performance and be eligible for the advanced training.
The hours of operation will vary...

Divisional Performance Evaluation

Divisional Performance Evaluation

Overview:-
Most large Organisations adopt divisionalised structures. The manner in which
divisional performance is controlled and measured is, therefore, of particular
importance. A central issue of performance reporting is whether divisional
managers should be held accountable for items that they cannot influence by their
actions. The conventional wisdom of management accounting, as reflected in
textbooks, advocates that the evaluation of a manager’s performance should
consist of only those factors under a manager’s control. Therefore, divisional
managerial performance measures should include only the items controllable by
divisional managers. Or, performance measurement should be based on the
application of the controllability principle.

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A manager is said to have a decision right if the enforcement and

disciplinary powers of the top- level executive office will be used to enforce
his ability to take an action. In large organizations, decision rights are more
 complex than the simple phrase suggests. For example, it is common in
such organizations for no single individual to have all the decision rights
necessary to undertake a major project. Instead, there is a complex process
that brings many people into the decision-making function, a process that
breaks the simple notion of a decision right into many components that are
allocated to various decision agents. The following is a common breakdown:

1. Initiation right—the right to initiate resource allocation proposals.

2. Notification right—the right to be notified of the actions or proposed
actions of others in the organization and the right to provide information or
recommendations to the decision process regarding those proposals.
3. Ratification right—the right to review and ratify or veto the resource
allocation recommendations of others.

CITIBANK: PERFORMANCE EVALUATION

⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯
Citibank: Performance Evaluation is a Harvard Business School case. In light of her
dilemma, Lisa Johnson hired you as a consultant to help her evaluate the merits of the current
scorecard and resolve the evaluation of James McGaran. Prepare a memo to Lisa addressing
the issues noted below.
1. Your evaluation of Citibank’s scorecard, including:
a. What is the nature and extent of association between the scorecard measures and
Citibank’s strategy?
b. What is the quality of the estimators (i.e., bias, efficiency and consistency) in the
scorecard?
c. What role did subjectivity play in completing evaluation scorecard? Should the scorecard
allow for more or less subjectivity? Why?
d. What is your assessment of the scorecard’s fairness?
2. A recommendation for the final evaluation of James McGaran, including:
a. Should he receive an overall above par score for his branch’s performance? Why or why
not?
b. How would other branch managers likely react to James receiving an “above par” score?
How would they react if James received something less than an above par score

Citibank : Performance Evaluation

“Performance management is about creating relationships and ensuring
effective communication Its about focusing on what organisations, managers
and team members need to succeed”
- Robert Bacal

Why do even best of great strategies fail?

 • A study of 275 professional portfolio managers reported that the
ability to execute strategy was more important than the quality of the
strategy itself (“Measures That Matter,” Ernst & Young, Boston, 1998)

• In the early 1980s, a survey of management consultants reported that

less than 10 percent of effectively formulated strategies were
implemented successfully (Walter Kiechel, “Corporate Strategists
Under Fire,” Fortune, Dec. 27, 1982).

• A 1999 Fortune article, in a cover story of prominent CEO failures,

concluded that the emphasis placed on strategy and vision created a
mistaken belief that the right strategy was all that was needed to
succeed. The authors concluded that “…in the majority of cases—we
estimate 70 percent—the real problem isn’t [bad strategy]…it’s bad
execution.” (R. Charan and G. Colvin, “Why CEOs Fail,” Fortune, June
21, 1999).
Q 1 : Why has Citibank introduced a Performance Scorecard

Components of a Scorecard

Standards

Involvement in
Community groups Objectives Measures Targets

Performance Management
Involves establishing clear expectations and understanding about:
 The team member employee's essential job functions
 How the team members job contributes to the goals of the
organisation
 What it means, in concrete terms, to do the job well
 How job performance will be measured
  That barriers hinder performance and how they can be minimized
 How the member and the team leader will work together to improve
the member’s performance

Performance Planning

Performance Management
Manage performance –Performance evaluation is just a small part of
performance management- and probably the least important The Steps are:
 Planning performance
► This involves both you as a manager an your team to analyze
the work to achieve goal
 Making right decisions
► By collecting and evaluating data and information
 Diagnosis and Problem solving
► Identification of barriers to performance (past, present &
future) so as to formulate plans to overcome the barriers
 Performance appraisal meeting
► Summary/Review

James Performance
► If I am Lisa, I shall give Above Par ratings to James.
 He has done exceptionally well across the scorecard and though he is
seen as struggling in the area of customer satisfaction, he is
consciously making efforts to over come it
Lets not forget the parameters which are beyond branch’s control are also
detrimental for customer satisfaction score.
 Citibank
. Return on Investment (ROI) is commonly used for divisional performance
evaluation . and implicitly compared to cost of capital, so that the EVA
concept is implictly used. . To prevent underinvestment, the formula can be
modified. . E.g., Mars (the candy company) uses replacement value, rather
than book value, of invested capital in the denominator. . At Vyaderm, there
was one metric used to evaluate performance and determine the bonus –
EVA. . Companies (e.g., Citibank) often use multiple metrics, both financial
and non-financial.

• These metrics are used to capture: . Financial performance, .

customer satisfaction, . internal business processes, and . learning
and growth.
• Some advantages of this performance scorecard include: .
redistributing managerial attention toward broader value drivers; .
balancing long-term and short-term orientations; . communicating
value drivers and thereby increasing goal alignment; . e.g., having
EVA as the sole performance measure does not tellemployees how to
achieve high EVA (or what its drivers are). . and mapping a path for
implementing strategy.

What is Citibank’s competitive strategy in California? They are niche players

here. They have a relationship banking / high service strategy. . Frits wants
employees to have a broader view and long-term focus, hence the performance
scorecard. .

What problems do you see with the performance scorecard? Will managers
over-invest in the easiest, rather than most value-adding, goals? . Could some
measures (e.g., learning and growth) become value-consuming rather than value-
adding? . Can multiple goals be distracting?

Does the performance scorecard specify the tradeoffs between the different
goals?
• Can you maximize on more than one dimension without knowing the
tradeoffs? .
• i.e., what is the aggregation rule for the scores on different dimensions?
• In the end, we need a single score to judge performance, and will use an
implicit aggregation rule in the absence of an explicit one..
 • So it may be better to have an explicit one.

What do you think of the customer satisfaction measure?

 Is it a leading indicator of future financial performance?
 Should uncontrollable aspects of service, such as ATM’s and 24 hour phone
banking be included in the survey?
 Are 25 surveys representative of the customer population for the branch?

How is McGaran’s branch different from others in L.A.?

• It has a diverse customer base.
• It is in the financial district, and so has many demanding customers.
• Competitors are less than a block away.
• It is not in a residential area, so it likely has a higher-churn customer base.

What is an important agency problem in this setting (geographically dispersed

branches)?
• . The free-rider problem.
• . A given branch can free-ride on the brand reputation by lowering
(service or product) quality.
• . The branch receives the full benefit from the cost-of-quality savings, and
bears only a fraction of the cost.
• This free-rider problem is accentuated by the managerial horizon problem.
The manager can skimp on quality and save costs, get promoted in a
couple of years, and pass the cost of reduced quality on to the next
manager.

The free-rider problem is more of an issue when the cost of reduced quality is
revealed more slowly. How does this relate to the customer base of the
branch?
• If the customer base is low-churn, i.e., lots of repeat customers, then cost of
reducing quality is very high for the branch.
 . E.g., if the branch is in a residential area. Customers are lost and
word of mouth spreads.
 . Effect of low quality shows up quickly in revenues.
• If customer base is transient, i.e., lots of one-time customers, cost of
reducing quality is very low for the branch.
 Effect of low quality is unlikely to show for a few years or several
years (depending on composition of customer base).

Do you think this is a problem at McGaran’s branch? Why?

• . Likely. Profits exceed plan by about 19%.
 . Of course, the target may have been too low, but this is usually not
the case. Area manager thinks target is aggressive (Exhibit
 • Perhaps not. Revenues have grown, and there is growth in all business
segments.
 . But again, if the business is generally growing, and if customer
base is highly transient, will the effect of poor quality show up in
revenues?

Why does the area manager appear to underweight the poor customer satisfaction
scores?
• . Perhaps customers are rating support services, such as ATM’s, that are
not controllable at the branch level. . However, this should be the case at
every branch then.
• Is the answer in her performance measurement scheme?
o . Most likely, though the case provides no evidence on this.
o . If McGaran’s scheme does not specify the tradeoffs between the
dimensions, is it likely that hers does?
She has 31 branches, which will help dampen the effect of poor
customer satisfaction stores at one branch.
• . To align goals, there must be congruence along the reporting chain.

What is the effect of a discrete performance scale (below-, at-or

above-par)?
• . Increasing the rigidity of the system induces behavioral distortions.
• . A manager may manage numbers to reach a higher category,
• . or abandon the goal altogether if the higher category is unreachable in a
given year.
• . Manager’s may be forced to break rules, which undermines those rules.
E.g.,
o . why did Johnson give McGaran a “par” rating on customer
satisfaction in two quarters?
o . Why is Frits faced with a dilemma whereby he might have to break
the rule for giving an “above par” rating?
• . There is a loss of information – comparisons across managers and over
time are coarse.

• Reinforcing this problem is a discrete bonus payoff scheme – 0, 15%, 30%.

• This can be seen as imposing high risk, and it will provide further incentive
for behavioral distortions.
• Does the scorecard help balance long term and short term incentives,
asintended?
o . The way to do this is to reward a long term orientation.
• Would a bonus bank, as at Vyaderm, be useful?
 o . This could be used to smooth bonus payments. If beating plan by a
wide margin does not pay off as much today, it might reduce
divergent behavior.
o . Customer satisfaction scores could be used to determine
contributions to the bonus bank.
o . Poor customer satisfaction scores in a single quarter will not affect
the bonus payout from the bank as much.
o . If gains from customer satisfaction will show up in a few years,
manager is assured that these gains eventually will show up as
bonus payments. McGaran can tradeoff some profit today, for much
higher returns from customer satisfaction in a couple of years. .
o Make the bonus bank portable, to control the horizon problem.

What would you do with McGaran now?

• . One solution is to override the system and give him an overall above-par,
but then to limit his bonus to 20% (instead of 30%).
• . As an aside, what does McGaran’s “willingness to work weekends,
holidays and during his vacation to ensure customer satisfaction,
operational control and financial growth” tell you about him as a
manager?
• . A manager should be able to effectively delegate, and should be able to
build a system (well-developed employees and procedures, etc.) to preclude
the need for this.
• . In emergencies however, his willingness is admirable.

How effective is McGaran’s performance scorecard?

• . Customer service is vital to Citibank California’s strategy, but the
scorecard is not communicating this.
• . The scorecard is not aligning goals along the reporting chain. . It does not
provide long-term incentives.

How would you redesign the performance measurement system?

• . Specify the weights for the different performance dimensions.
• . Have a continuous performance scale and bonus payoff scheme.
• . Ensure goal congruence along the reporting chain.
• . Introduce a bonus bank to limit large single-period gains from
well-above-plan profitability and to provide long term incentives.