Performance Evaluation Systems & Incentive and Reward Systems

Notes from the packet

Effective performance measures have the following characteristics

controllability, sensitivity, and aligned with organizational goals

Define Controllability

The aspects of performance being measured should be under the control of the manager being evaluated.

• Many aspects of performance are NOT CONTROLLABLE

• ex: managers cannot control the performance of other units

Define Sensitivity

Decisions and actions taken by managers should be reflected in the performance measure

• If a performance measure does not change when good performance occurs, then the measure is not sensitive to a manager’s actions

Define Aligned with organizational goals

The performance measures should promote decisions and actions that are consistent with organizational goals

• If performance measures can be improved by actions that are inconsistent with organizational goals, this leads to goal incongruence