Setting the Standard in Performance Measurement Systems

A fundamental challenge in the design of performance measurement and incentive systems is the establishment of appropriate benchmark levels of performance, also known as performance standards. Drawing from the information economics, contract theory and public administration literatures, we derive theoretical implications for the construction of performance standards. We then assess alternative methods that are commonly used to construct performance standards and consider their application in performance measurement systems in public programs. We draw out important lessons for the establishment of performance benchmarks and other implications for performance standards system design in public organizations.