Performance Five-year trend analysis Quality of reporting I Time • Sharp increase in the number of companies reporting KPIs, over the last five years. • Non-financial KPIs remain challenging for some. • Another step change is needed with a focus on improving linkages to strategy, risk and remuneration. Leading reporters: • Provide both financial and non-financial KPIs. • Include clear alignment of KPIs and strategic objectives. • Provide an indication of the risks which could have an impact on particular KPIs. • Consistently report on year-on-year trend data, benchmarks and future targets. • Detail linkages between KPIs and remuneration. n the area of performance reporting, we have seen a continual improvement in recent years in the number of companies disclosing key performance indicators (KPIs). We have again seen that there remains a gap in the extent of reporting of financial and non-financial KPIs, with the majority of companies reporting financial KPIs and a third of companies still failing to identify any non-financial KPIs. This year, there has been a slight improvement in those companies providing evidence of management’s strategic thinking by presenting a more integrated view of their KPIs, with leading reporters providing information on not just relevance but stronger alignment between stated strategy, reported KPIs, risk and remuneration. What’s required? The Companies Act 2006 states that ‘the review must, to the extent necessary for an understanding of the development, performance or position of the company’s business, include: analysis using financial key performance indicators, and where appropriate, analysis using other key performance indicators, including information relating to environmental matters and employee matters.’ The new UK Corporate Governance Code recommends that non-financial performance metrics should be reflected in the way incentive schemes for executives are constructed – this could lead to an increasing focus on non-financial KPIs in the front half of the report. In addition, there is also reference to the fact that performance-related pay should be designed to promote the long-term success of the company, hence encouraging companies to clearly show the relationship between KPIs and executive pay. 28 © Black Sun Plc 2011 www.blacksunplc.com
