Measuring performance – what makes a good KPI disclosure?

03 August 2017

With so many companies now required to identify and report on their key performance indicators (KPIs), it’d be easy to think that understanding how companies measure their strategic performance would be as straightforward as finding the right page of the annual report.

But the requirement to do something doesn’t always lead to transparent disclosure. A flick through the reports of companies in the FTSE 350 demonstrates the massive discrepancy that exists in the way different companies present their KPIs. For example, only 38% of FTSE 350 companies who reported between 1st April and 30th September 2016 explicitly linked KPIs to strategic priorities, and even fewer (20%) explicitly linked them to remuneration measures.

Tips for transparent disclosure

We believe that a few, small basic changes make this one area of reporting that can easily produce a quick win in improving the overall quality of the annual report:

  1. Define your KPIs Be clear about how you are calculating your measures. Allow investors to understand what has and hasn’t been included in your calculation. This could be done in a separate glossary at the end of the report as long as it is referenced on the KPI page. 
  2. Linkage Explicitly align your KPIs to your strategic priorities, and where relevant, demonstrate linkage to executive remuneration measures. This can be done using symbols, numbers or other icons.
  3. Relevance Explain why the measures you have chosen are right for your strategy. Make this reasons specific for your company – investors are looking to understand the choices you make, they don’t want to read generic statements.
  4. Performance data and rationale Give an insight into what the performance data shows, what factors have driven the change and whether this is in line with expectations. Don’t just reiterate what an accompanying graph already shows us.
  5. Targets – Clearly identify the desired performance of each KPI and when management believe that target can be achieved. Remember to report overall performance in the context of this journey not just the yearly achievements.

What does all this look like in practice? Well our new measuring performance website highlights a couple of companies that we believe are leading the way in this area. Take a look and think about the little changes you could make to show greater transparency in how you measure performance.

Elaine Forrest | Corporate Reporting specialist
Profile | +44 (0)20 7804 2402

 

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