Designing a new performance based remuneration scheme
Statoil Detaljhandel Norway AS (SDN) operates and franchises the Statoil branded retail service stations in Norway and is the market leader, with Shell, Esso and Hydro Texaco as its main competitors.
PA assisted Statoil Detaljhandel in the design of a new performance based remuneration scheme applicable to all levels of management and throughout the organisation. The project's objectives were to increase the firm's focus on value creation, enable it to retain, develop and attract highly skilled personnel, and improve managerial processes.
The old remuneration scheme had several weaknesses; base salary was the major compensation component and hence the system did not emphasise the importance of performance. Furthermore, the system was not perceived as fair and high performers did not perceive the system as attractive.
One of the key benefits of the new reward scheme was the management group's shift in thinking from traditional EBIT/ROCE performance measures to Economic Profit thinking. Another key benefit from the project was the top-down control achieved by making the bonus pool's distribution dependent only on value creation.
The new scheme also emphasised the balance between short-term and longer-term value creation by including both profit margin targets and market share targets in the individual balanced scorecards.
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