Performance Measurement
Amid today’s rapid pace of change and increasing demands for performance, organizations
are being pushed to re-evaluate their executive reward strategies. Many are modifying
their long-term incentive programs to incorporate performance-based vesting conditions
– comparing their own performance to that of peer companies is a common approach.
It seems like a straightforward concept, but it may not be as easy as it seems.
Implementing incentives based on relative performance presents challenges, some
of which may require complicated solutions. Consider these questions, for instance:
- Performance relative to what? In other words, how should the companies that make
up the peer group be chosen?
- Who should be involved in selecting the appropriate peer group?
- Should overall market performance figure into the assessment of relative performance?
- How should relative performance be measured?
- How should targets be set?
These are just a few of the questions that must be addressed before including a
relative performance measure in an incentive plan. Clearly, they do not lend themselves
to simple, generic answers.
Bluelime's expertise lies in helping clients examine how to build an effective relative
performance assessment tool for incentive plan design. To uncover and resolve the
complexities of the issues involved in executive reward programs and the importance
of an objective, empirical foundation for important program and policy decisions.