Join Earl Kay Stice for an in-depth discussion in this video Performance evaluation example: Stice boys, part of Accounting Foundations: Fundamentals.
One more illustration of the power performance evaluation I like this one because it shows how you can use accounting in the home. In 1995 my family and I moved to Hong Kong. Now one of the complications of moving to Hong Kong was that my sons, who were 13 and 11 years old at the time, needed to travel to a private school that was a ways from our home. So I went to them to the orientation before the first day of school. We sat there in the orientation and heard lots of beautiful things but I have to confess, one thing stuck out in my mind more than anything else.
My sons were gonna have to pay HK$50 apiece to ride the school bus to and from school every day. Now HK$50, that's about $7. $7 dollars apiece every day to get bused to and from school. Hmmmm. So I thought about that during the orientation. I guess I should have been focused on the orientation material, but I thought about this HK$50, this $7, because we had just travelled to that location using public transportation, a bus and then a subway.
And my sons could go to and from school for HK$10 a little bit more than $1 a day, each. So, my thought was this. I could pay HK$50 a day for each of them to go to and from school or they could just ride the public transportation. The public transportation in Hong Kong is great. It'd only cost our family $10 a day each. So I figured the Stice family savings from public transportation for each of my sons was HK$40 a day. So that's the kinda thing that I was thinking about, bad guy that I am, during the school orientation.
Well after it was over, I said to my 2 sons, Daryl and [Hong] are their names, I said let's come out in the park behind the school. So we went up behind the school and we sat in this little pavilion and I explained these numbers to them. So I said, listen boys, here's what I'll do. It will save our family HK$40 a day, about $6, if you will ride public transportation instead of the school bus. Here's what I'll do. I'll split the savings with you. I'll give you each HK$20 a day, about $3, and I'll keep the other 20.
We'll split the savings. Done. Right then and there they agreed to it. A performance evaluation measure. I would pay them HK$20 every day that they rode a public transportation to school. That was the performance evaluation measure that I had in place. And I said, I will pay you in cash every Friday. So I will pay you HK$100 every Friday, so $14 or $15. Did I ever again have to remind them to take public transportation? No, I did not. Never had to discuss it again.
There was one problem the first time that there was a school vacation. Yhey had a Thursday and Friday off, so they came to me on Friday and said, OK dad, we're ready to collect HK$100 a piece and I said, well you only went to school 3 days this week because of the holiday. It's only 60. Well, they bitterly criticised the school under their breathes for having these holidays. They hated holidays after that. They were never sick, they never missed school because we had a performance evaluation system in place that caused them to do exactly what I wanted them to do.
That's the power of accounting. If I can find the right thing to measure, in this case I want to measure how many days you ride public transportation to school, and I'll pay you for doing it. If I can find the right measure and put the right performance incentive in place, I don't ever have to have any talk with my employees again. Or in this case, any talk with my sons again. We lived there for 3 years and I never had a conversation with them about getting to and from school. We had a performance evaluation system in place. Accounting in the home. The power of measurement.
- What is accounting?
- Working with balance sheets and income statements
- Determining the costs of products
- Performing break-even analysis
- Determining average and marginal tax rates
- Understanding tax deductions and credits