Performance Evaluation Using Accounting Information

3134 Words May 3rd, 2013 13 Pages
What is performance evaluation? o Performance evaluations are formal review processes designed to encourage the informal day-to-day practice of performance management, while providing a framework in support of merit pay adjustments, promotion and employment decisions. Evaluating staff performance and helping employees develop their skills are important duties associated with performance management. Performance management begins with supervisors and employees collaboratively setting goals and standards, clearly communicating performance expectations and evaluating the results during the performance evaluation process. o o A performance appraisal is a systematic and periodic process that assesses an individual …show more content…
Accounting data frequently is used in performance evaluations, because it is seen as an objective method to evaluate performance. While there are many advantages to using accounting information for this purpose, small-business owners should be careful to understand that there are drawbacks as well. Knowing the pros and cons of using accounting metrics can help business owners choose the right data to use for evaluating employee performance.

Budget to Actual

Many businesses expect employees to achieve budget targets as part of their overall performance. While the specifics requirements of each employee differ with the position and nature of the company, it is common for employees to be expected to sell a certain number of items, control costs versus a budgeted amount or reduce waste compared with a benchmark. A potential downfall of using budget information for performance evaluation is that employees may be so concerned with making budget targets that they may do so at the cost of other parts of the business.

Sales Growth

Sales employees and business management frequently are evaluated on the basis of sales growth. Sales growth usually is calculated as the percentage that sales have increased over the prior year. While this metric is commonly used to gauge performance, it does not come without drawbacks. If the general economy changes from year to year, then sales may naturally be increasing or decreasing. For example, if the economy is in
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