Are Nonfinancial Metrics Good Leading Indicators of Future Financial Performance?

It’s become increasingly popular to use nonfinancial measures such as customer satisfaction in performance management frameworks and executive compensation schemes. But how well does that work?

Vincent O’Connell and Don O’Sullivan

Summer 2016

In recent years, more and more companies have begun using nonfinancial measures as leading indicators of future financial performance. Inspired by strategic management performance tools including Robert S. Kaplan and David P. Norton’s popular balanced scorecard, corporate boards have extended executive compensation schemes to embrace measures for, among other things, customer satisfaction, employee engagement, and openness ...