10. Selecting Performance Measures and Setting Goals

How you “get the [management] power to the ground” via incentive
plan design is answered right here. Selecting performance measures
and setting appropriate goals around those measures is the heart
and soul of an incentive plan. Done well, it can significantly assist
a company to achieve its most important goals. Done poorly, the
incentive plan can actually become a de-motivator, foster unwanted
gamesmanship, and/or cause turnover of key executives.

This chapter helps you to get it right. It first sets the context for
performance measurement through incentive systems by discussing
the types of performance measures and goals. The author highlights
five key questions to ask in selecting a performance measure,
all leading to the clear conclusion that the questions themselves are
best answered through company-specific analysis, as opposed to
generic cross-industry survey prevalence data. Once measures are
selected the chapter provides discussion of other important items
for subsequent consideration such as determining the appropriate
time frame for measurement and the optimal number of measures
in an incentive system.

As with the careful selection of the best measures, determining
the appropriate goals for each measure is both critical and
difficult. The author frames the approach to this decision with a
discussion of criteria such as internally vs. externally driven,
performance vs. budget or a standard, and achievable vs. stretch.
The chapter concludes with the author’s coverage of four
pitfalls to avoid when selecting performance measures and metrics.
Even the most experienced incentive plan designer would benefit
from these final words. —Editors



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