Skip to main content
  • Foundation
  • Executive network
  • CEO Circle
  • Enterprise Solutions
  • Linkage Logo
  • Store
  • Sign In
  • Account
    • My Account
    • Logout
    • Global
    • India
    • MENA
SHRM
About
Book a Speaker
Join Today
Renew
Rejoin Now
Renew
  • Membership
  • Certification
    Certification

    Smiling asian student studying in library with laptop books doing online research for coursework, making notes for essay homework assignment, online education e-learning concept
    Get Certified!

    Be recognized as an HR leader with your SHRM-CP or SHRM-SCP credential.

    • How to Get Certified

      Demonstrate your ability to apply HR principles to real-life situations. No other HR certification compares.

      • How to Get Certified
      • Eligibility Criteria
      • Exam Details and Fees
      • SHRM-CP
      • SHRM-SCP
      • Which Certification is Best for Me
      • Certification FAQs
    • Prepare for the Exam

      Give yourself the best chance to pass your SHRM certification exam.

      • Exam Preparation
      • SHRM BASK
      • SHRM Learning System
      • Instructor-Led Learning
      • Self-Study
      • Study Aids & Add-ons
    • Recertification

      Recertify your SHRM Credentials before your end date!

      • Specialty Credentials
      • Qualifications
  • Topics & Tools
    Topics & Tools

    Stay up to date with workplace news and leverage our vast library of resources to streamline day-to-day HR tasks.

    The white house in washington, dc.
    Executive Order Impact Zone

    Do not abandon, but evaluate and evolve. It is about legal, equal opportunity for all.

    • News & Trends

      Follow breaking news and emerging workplace trends.

      Legal & Compliance

      Stay informed on workplace legal updates and their impacts.

      From the Workplace

      Explore diverse perspectives from your peers on today's workplaces.

      Flagships

      Get curated collections of podcasts, videos, articles, and more produced by SHRM.

    • HR Topics
      • AI in the Workplace
      • Civility at Work
      • Compensation & Benefits
      • Inclusion & Diversity
      • Talent Acquisition
      • Workplace Technology
      • Workplace Violence Prevention
      SEE ALL
      SHRM Research
    • Tools & Samples

      Access member resources and tools to streamline HR tasks.

      • Forms & Checklists
      • How-To Guides
      • Interactive Tools
      • Job Descriptions
      • Policies
      • Toolkits
      SEE ALL
      Ask an Advisor
  • Events & Education
    Events & Education

    SHRM25 in San Diego, June 29 - July 2, 2025
    Join us for SHRM25 in San Diego

    Register for the World’s Largest HR Conference being held on June 29 - July 2, 2025

    • Events
      • SHRM25
      • The AI+HI Project 2025
      • INCLUSION 2025
      • Talent 2026
      • Linkage Institute 2025
      SEE ALL
      Webinars
    • Educational Programs

      Designed and delivered by HR experts to empower you with the knowledge and tools you need to drive lasting change in the workplace.

      Specialty Credentials

      Demonstrate targeted competence and enhance credibility among peers and employers.

      Qualifications

      Gain a deeper understanding and develop critical skills.

    • Team Training & Development

      Customized training programs unique to your organization’s needs.

  • Business Solutions
  • Advocacy
    Advocacy

    Make your voice heard on public policy issues impacting the workplace.

    Advocacy
    SHRM's President & CEO testifies to Congress on "The State of American Education"
    • Policy Areas
      • Workforce Development
      • Workplace Inclusion
      • Workplace Flexibility & Leave
      • Workplace Governance
      • Workplace Health Care
      • Workplace Immigration
      State Affairs

      SHRM advances policy solutions in state legislatures nationwide.

      Global Policy

      SHRM is the go-to for global HR leaders and businesses on workplace matters.

    • Advocacy Team (A-Team)

      SHRM’s A-Team is a key member benefit, giving you the tools, insights, and opportunities to shape workplace policy and drive real impact.

      Take Action

      Urge lawmakers to support policies that create lasting, positive change.

      Advocacy & Legislative Resources

      Access SHRM’s curated policy materials and content.

    • SHRM-Led Coalitions
      • Generation Cares
      • The Section 127 Coalition
      • Learn More & Partner with SHRM Government Affairs
  • Community
    Community

    Woman raising hand in group
    Find a SHRM Chapter

    Easily find a local professional or student chapter in your area.

    • Chapters

      Find local connections from over 607 chapters and state councils and create your personalized HR network.

      SHRM Connect

      Post polls, get crowdsourced answers to your questions and network with other HR professionals online.

      SHRM Northern California

      Join SHRM members in the greater San Francisco Bay area for local events and networking.

    • Membership Councils

      Learn about SHRM's five regional councils and the Membership Advisory Council (MAC).

      • Membership Advisory Council
      • Regional Councils
    • Volunteers

      Learn about volunteer opportunities with SHRM.

      • Volunteer Leader Resource Center
Close
  • Membership
  • Certification
    back
    Certification
    Smiling asian student studying in library with laptop books doing online research for coursework, making notes for essay homework assignment, online education e-learning concept
    Get Certified!

    Be recognized as an HR leader with your SHRM-CP or SHRM-SCP credential.

    • How to Get Certified

      Demonstrate your ability to apply HR principles to real-life situations. No other HR certification compares.

      • How to Get Certified
      • Eligibility Criteria
      • Exam Details and Fees
      • SHRM-CP
      • SHRM-SCP
      • Which Certification is Best for Me
      • Certification FAQs
    • Prepare for the Exam

      Give yourself the best chance to pass your SHRM certification exam.

      • Exam Preparation
      • SHRM BASK
      • SHRM Learning System
      • Instructor-Led Learning
      • Self-Study
      • Study Aids & Add-ons
    • Recertification

      Recertify your SHRM Credentials before your end date!

      • Specialty Credentials
      • Qualifications
  • Topics & Tools
    back
    Topics & Tools

    Stay up to date with workplace news and leverage our vast library of resources to streamline day-to-day HR tasks.

    The white house in washington, dc.
    Executive Order Impact Zone

    Do not abandon, but evaluate and evolve. It is about legal, equal opportunity for all.

    • News & Trends

      Follow breaking news and emerging workplace trends.

      Legal & Compliance

      Stay informed on workplace legal updates and their impacts.

      From the Workplace

      Explore diverse perspectives from your peers on today's workplaces.

      Flagships

      Get curated collections of podcasts, videos, articles, and more produced by SHRM.

    • HR Topics
      • AI in the Workplace
      • Civility at Work
      • Compensation & Benefits
      • Inclusion & Diversity
      • Talent Acquisition
      • Workplace Technology
      • Workplace Violence Prevention
      SEE ALL
      SHRM Research
    • Tools & Samples

      Access member resources and tools to streamline HR tasks.

      • Forms & Checklists
      • How-To Guides
      • Interactive Tools
      • Job Descriptions
      • Policies
      • Toolkits
      SEE ALL
      Ask an Advisor
  • Events & Education
    back
    Events & Education
    SHRM25 in San Diego, June 29 - July 2, 2025
    Join us for SHRM25 in San Diego

    Register for the World’s Largest HR Conference being held on June 29 - July 2, 2025

    • Events
      • SHRM25
      • The AI+HI Project 2025
      • INCLUSION 2025
      • Talent 2026
      • Linkage Institute 2025
      SEE ALL
      Webinars
    • Educational Programs

      Designed and delivered by HR experts to empower you with the knowledge and tools you need to drive lasting change in the workplace.

      Specialty Credentials

      Demonstrate targeted competence and enhance credibility among peers and employers.

      Qualifications

      Gain a deeper understanding and develop critical skills.

    • Team Training & Development

      Customized training programs unique to your organization’s needs.

  • Business Solutions
  • Advocacy
    back
    Advocacy

    Make your voice heard on public policy issues impacting the workplace.

    Advocacy
    SHRM's President & CEO testifies to Congress on "The State of American Education"
    • Policy Areas
      • Workforce Development
      • Workplace Inclusion
      • Workplace Flexibility & Leave
      • Workplace Governance
      • Workplace Health Care
      • Workplace Immigration
      State Affairs

      SHRM advances policy solutions in state legislatures nationwide.

      Global Policy

      SHRM is the go-to for global HR leaders and businesses on workplace matters.

    • Advocacy Team (A-Team)

      SHRM’s A-Team is a key member benefit, giving you the tools, insights, and opportunities to shape workplace policy and drive real impact.

      Take Action

      Urge lawmakers to support policies that create lasting, positive change.

      Advocacy & Legislative Resources

      Access SHRM’s curated policy materials and content.

    • SHRM-Led Coalitions
      • Generation Cares
      • The Section 127 Coalition
      • Learn More & Partner with SHRM Government Affairs
  • Community
    back
    Community
    Woman raising hand in group
    Find a SHRM Chapter

    Easily find a local professional or student chapter in your area.

    • Chapters

      Find local connections from over 607 chapters and state councils and create your personalized HR network.

      SHRM Connect

      Post polls, get crowdsourced answers to your questions and network with other HR professionals online.

      SHRM Northern California

      Join SHRM members in the greater San Francisco Bay area for local events and networking.

    • Membership Councils

      Learn about SHRM's five regional councils and the Membership Advisory Council (MAC).

      • Membership Advisory Council
      • Regional Councils
    • Volunteers

      Learn about volunteer opportunities with SHRM.

      • Volunteer Leader Resource Center
Join Today
Renew
Rejoin Now
Renew
  • Store
    • Global
    • India
    • MENA
  • About
  • Book a Speaker
  • Foundation
  • Executive network
  • CEO Circle
  • Enterprise Solutions
  • Linkage Logo
SHRM
Sign In
  • Account
    • My Account
    • Logout
Close

  1. Topics & Tools
  2. Workplace News & Trends
  3. Compensation & Benefits
  4. Measuring for Success: Choose Incentive Metrics Wisely
Share
  • Linked In
  • Facebook
  • Twitter
  • Email

Lorem ipsum dolor sit amet, consectetur adipiscing elit. Vivamus convallis sem tellus, vitae egestas felis vestibule ut.


Error message details.

Copy button
Reuse Permissions

Request permission to republish or redistribute SHRM content and materials.


Learn More
News

Measuring for Success: Choose Incentive Metrics Wisely

Performance is undermined when employees don't understand the incentive plan or its metrics

January 6, 2015 | Joanne Sammer



Finding the right mix of incentives necessary to maximize employee performance can be a challenge. However, as employers continue to rely more heavily on variable pay to supplement flat salary-increase budgets, relevant, actionable and easily understandable performance metrics become an even more important element of effective incentive programs.

“As the economy has gotten stronger, the real focus is on trying to reward the best performers,” said Peter Gundy, managing director with Towers Watson in Stamford, Conn. To ensure that employers are indeed rewarding those employees, they must make sure that they are measuring the right types of performance. “Metrics are critically important not only to an effective incentive plan but also to moving the business forward,” said Gundy.

Performance metrics are a key way for employers to communicate what’s important to their employees. “With an incentive plan, you get what you pay for,” said Ken Abosch, compensation practice leader for Aon Hewitt in Lincolnshire, Ill. “If you are measuring the wrong things, people will focus on those things. They do what you ask them to do.”

-------------------------------------------------------------

‘With an incentive plan, you get what you pay for.’

-------------------------------------------------------------

Finding the Right Metrics

Performance metrics can vary widely by industry, company, position and other factors. Finding the right set is a complex exercise. Here are some do’s and don’ts to help guide the process.

• Identify business strategy and goals.

The most effective employee performance metrics are based on an organization’s broader business strategy and goals. Measures that align with the business strategy reflect and help to drive the right outcomes and behaviors for the organization.

Just what those outcomes are, however, can change over time. “Over the last several years, a lot of employers placed a significant amount of emphasis on profitability and cost control,” said Gundy. “Now as the economy has recovered and gotten stronger, there has been a push for more top-line, profitable growth with goals balanced between sales, revenue growth and profitability.”

Translating those goals into effective employee performance metrics is crucial. “Clear measures are probably the most important determiner of success for an incentive plan,” said Abosch. He urged organizations to select incentive plan performance measures based on what really drives their businesses. From there, they can focus on forging a strategic link between those drivers and the performance metrics in the incentive plan.

For example, an organization whose success is based on operational excellence must develop metrics so that every employee is focused on what drives operational excellence for that organization, such as timeliness, building efficiencies and streamlining operations.

• Don’t leave it in managers’ hands.
Effective metrics need to be relevant to individual employees. “One of the big mistakes employers make is to create an incentive plan with a bonus pool that is based on profitability and growth measures and then stopping there,” said Gundy. The thinking in these situations is that the organization makes the funds available for the bonus pool, then leaves it up to individual managers to figure out how to allocate that money. “That is a horrible mistake,” he said.

According to Towers Watson’s 2014 Global Talent Management and Rewards Study, only 45 percent of employees surveyed think managers are effective at making sure pay decisions reflect employee performance. Just over half (52 percent) say their companies do a good job of explaining pay programs, and less than half see a clear link between their pay and their performance.

Gundy notes that the lion’s share of issues occur when employees don’t understand the incentive plan or its metrics and when managers are not communicating or using the plan effectively.

• Make sure employees can control their outcomes.
Employees not only have to understand their performance metrics for an incentive plan to succeed, they also must understand how their actions and results impact those metrics. “The best plans translate the main bonus funding measures into something that is tangible, actionable and realistic to employees,” said Gundy. “Employees must be able to look at those metrics and see how they influence those things.”

For example, the speed at which an accounting staff member can collect on accounts receivable has a significant impact on the company’s available cash. That level of clarity must also exist when it comes to developing metrics tied to other goals, like sales growth and earnings per share.

• Don’t overwhelm employees.
It is important to strike the right balance between having too few and too many metrics. The “just right” combination of metrics can guide performance without overwhelming employees or diluting their efforts and focus on too many priorities. “Some organizations only care about company measures, and they do not cascade anything below that,” said Abosch. “In those cases, the total focus might be on, for example, the number of packages delivered with everyone measured based on that goal.”

Even when employers break down high-level goals to the individual level, they must take care not to overdo it. Abosch recalls one company that had well over 100 metrics for its incentives. “Such a plan is worthless in terms of creating focus,” he said. “You want to make sure you are not diluting the impact or losing focus by using too many metrics.”

Three to five metrics seems to be the sweet spot for many organizations. “You don’t want to have a plan that has 12 different measures,” said Gundy. “Such a plan loses its effectiveness.” Employers can guide employee performance even more by weighting each metric according to its importance.

• Revisit metrics regularly.
Organizations and their goals and priorities change over time, and so should performance metrics. “Employers should at least validate the measures every year,” said Abosch. “The business environment is moving quickly. Employers need to assess whether they are still using the right metrics.”

Some employers revisit metrics on an annual basis as part of the annual business planning cycle, while others do so at some other interval. However, any major shift in strategy, organizational structure or markets may require an off-cycle look at metrics. The key is to validate those metrics to ensure that they, and the incentive plan, are still driving the right outcomes and behaviors.

Continuous Improvement

Ultimately, any incentive plan needs to drive better outcomes in order to pay for itself via performance improvements. Having the right metrics is just part of that equation. Everything from identifying the right goals to implementing and communicating the plan will impact an incentive plan’s success. It is important for employers to get them right.

Joanne Sammer is a New Jersey-based freelance writer.

Related SHRM Articles:

Variable Pay Spending Spikes to Record High, SHRM Online Compensation, September 2014

Annual Incentive Metrics: Hit the Target, SHRM Online Compensation, May 2014

Improving Performance Evaluations Using Calibration, SHRM Online Compensation, May 2014

Propel Performance with Pay: HR Leaders’ Insights, SHRM Online Compensation, May 2014

Quick Links:

SHRM Online  Compensation Topics & Strategy


Bonuses and Incentives
Compensation
Global Mindset

Artificial Intelligence in the Workplace

​An organization run by AI is not a futuristic concept. Such technology is already a part of many workplaces and will continue to shape the labor market and HR. Here's how employers and employees can successfully manage generative AI and other AI-powered systems.



Related Content

Kelly Dobbs Bunting speaks onstage at SHRM24
(opens in a new tab)
News
Why AI+HI Is Essential to Compliance

HR must always include human intelligence and oversight of AI in decision-making in hiring and firing, a legal expert said at SHRM24. She added that HR can ensure compliance by meeting the strictest AI standards, which will be in Colorado’s upcoming AI law.

(opens in a new tab)
News
A 4-Day Workweek? AI-Fueled Efficiencies Could Make It Happen

The proliferation of artificial intelligence in the workplace, and the ensuing expected increase in productivity and efficiency, could help usher in the four-day workweek, some experts predict.

(opens in a new tab)
News
How One Company Uses Digital Tools to Boost Employee Well-Being

Learn how Marsh McLennan successfully boosts staff well-being with digital tools, improving productivity and work satisfaction for more than 20,000 employees.

HR Daily Newsletter

Stay up to date with the latest HR news, trends, and expert advice each business day.

Success title

Success caption

Manage Subscriptions
  • About SHRM
  • Careers at SHRM
  • Press Room
  • Contact SHRM
  • Book a SHRM Executive Speaker
  • Advertise with Us
  • Partner with Us
  • Copyright & Permissions
  • Post a Job
  • Find an HR Job
Follow Us
  • LinkedIn
  • Facebook
  • Twitter
  • Instagram
  • YouTube
  • SHRM Newsletters
  • Ask An Advisor

© 2025 SHRM. All Rights Reserved

SHRM provides content as a service to its readers and members. It does not offer legal advice, and cannot guarantee the accuracy or suitability of its content for a particular purpose. Disclaimer


  1. Privacy Policy

  2. Terms of Use

  3. Accessibility

Join SHRM for Exclusive Access to Member Content

SHRM Members enjoy unlimited access to articles and exclusive member resources.

Already a member?
Free Article
Limit Reached

Get unlimited access to articles and member-exclusive resources.

You've reached the limit of 1 free article this month. Join to access unlimited articles and member-only resources.

Already a member?
Free Article
Exclusive Executive-Level Content

This content is for the SHRM Executive Network and Executive Content Subscription members only.

You've reached the limit of 1 free article this month. Join the Executive Network and enjoy unlimited content.

Already a member?
Free Article
Exclusive Executive-Level Content

This content is for the SHRM Executive Network and Executive Content Subscription members only.

You've reached the limit of 1 free article this month. Join and enjoy unlimited access to SHRM Executive Network Content.

Already a member?
Unlock Your Career with SHRM Membership

Please enjoy this free resource! Join SHRM for unlimited access to exclusive articles and tools.

Already a member?

Your membership is almost expired! Renew today for unlimited access to member content.

Renew now

Your membership has expired. Renew today for unlimited access to member content.

Renew Now

Your Executive Network membership is nearing its expiration. Renew now to maintain access.

Renew Now

Your membership has expired. Renew your Executive Network benefits today.

Renew Now