Page 216 - Bruce Ellig - The Complete Guide to Executive Compensation (2007)

202 The Complete Guide to Executive Compensation

The advantages of a performance-based measurement include the following:
• Outcome expectations can be clearly defined for the person.
• The organization’s strategy can be parceled out to individuals so that the composite
constitutes the entire strategy.
On the other hand, frequent disadvantages include the following:
• Goals may not be realistic or of comparable difficulty to those of others.
• Goal attainment may be dependent on performance of others.
• Changing conditions require frequent adjustments to goals and timetables.
• Routine responsibilities of the job may not be included and therefore not appraised.
• Expected behavior is typically absent.

The last disadvantage is negated if a how factor is included. The “how” assesses behavior,
or the manner in which the work is done, in other words, adding an input-based component.
Some call this the culture or the set of company values. Regardless of what it is called, poor
“how” performance probably gets more executives fired than poor “what” performance.
Because of the subjectivity in “how” measurements, multirater systems are typically
employed. Customers, peers, and/or subordinates may be queried in some form to determine
their degree of satisfaction with how the results were achieved. Multirater systems provide
views from different perspectives and, therefore, are more likely to be complete in the whole.
When subordinates, peers, and managers are included, the process is sometimes called a
360 review. However, use this “view from all sides” carefully. Typically, they are used for
developmental issues, not pay actions, because peers and those supervised can exert positive
or negative bias depending on their relationship with the rated person. Some companies will
allow the ratee an opportunity to identify persons to serve as raters, while still retaining the
right to modify the list. The manner in which results are conveyed to the rated range from
unedited comments to edited versions (to retain anonymity). Usually, the rated is encouraged
to meet individually with the raters to focus on how to improve. A 360 review is illustrated
in Figure 5-20.

Manager Managers
Manager

Ratee

Peer Peer

Managed
Figure 5-20. 360 performance review

Regardless of the outcome-based approach used, it typically details expectations before
the beginning of the performance period. Ideally, these reviews have been jointly prepared.
However, if they have been rater imposed, they must be clearly communicated to the rated.
How else can the person meet expectations? During the performance period, the rater tells