ONE of the co-creators of the balanced scorecard business management tool believes good progress is being made in making corporate incentives more sustainable.

Robert Kaplan was in Edinburgh yesterday to speak at the Chartered Institute of Management Accountants conference.

Before his speaking engagement the Harvard Business School professor told The Herald that making sure rewards are spread out over several years is key to ensuring employees consider the long-term implications of what they are doing.

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He said: "Incentives should be placed on multi-year performance and even if a company is profitable it should not pay all the bonus out in that year but keep some in reserve.

"When you do it for multiple periods rather than a single period it forces people to think about the returns they are pursuing."

Mr Kaplan said a colleague had told him the retirement benefits of the chief executive of Exxon are based on profits 10 years after that person has left.

Mr Kaplan said: "Think of how much time that CEO spends on picking his successor knowing that his retirement income is based on that."

The failure of many banks to implement robust risk management strategies is something which Mr Kaplan led to the failures of Royal Bank of Scotland, Lehman Brothers and Northern Rock. He said: "The profit seeking strategy came to dominate and the risk management got submerged. In pursuit of profit the companies put themselves at great risk.

"They failed to anticipate what changes in the US mortgage market would do to their solvency.

"In the past in the banks the risk management function was a low level de-emphasised thing.

"It was a bunch of accountants doing checklists but a lot of the risks you take on you can't do on checklists. You need to have interactive discussions about the risk.

"Many companies still need to improve their risk functions and boards need information that help them understand the types of risk the company has taken on.

"A good system should lead to higher returns by taking on risk in a controllable way."

Mr Kaplan and David Norton published the balanced scorecard in the Harvard Business Review 20 years ago.

It provided a method of linking a company's current actions to its long-term goals using financial and non-financial metrics.

Conglomerates which have used the balanced scorecard include oil giant Mobil and retailer Sears.