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Performance measures in annual incentive plans have evolved from simply measuring performance to driving it. This makes determining the proper performance measures more important than ever. In addition to traditional accounting measures such as earnings per share and return on net assets, human resources practitioners have a myriad of alternatives including nonfinancial measures and new approaches such as economic value-added and the Balanced Scorecard. Although these performance measures can work quite well if used correctly, they each have unique design and implementation traps that can render them ineffective. By understanding and avoiding these traps, human resources professionals can more easily determine the appropriate performance measures for their organizations and successfully implement motivational incentive programs.
Kenzie et al. (Wed,) studied this question.