Figure 2
4 STEPS TO DEVELOP PERFORMANCE MEASURES
1. Define performance dimensions
2. Measure performance (operational and financial)
3. Set performance targets
4. Provide rewards (extrinsic and intrinsic)
According to the Balanced Scorecard Institute, good performance dimensions (Step 1):
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Focus employees' attention on the most critical success factors; and
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Minimize the goal ambiguity and conflict between constituents, as goal clarity is a challenge for NFPOs due to differences in values and interests amongst constituents.
Good performance measures (Step 2):
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Determine whether the strategy is working;
•
Deliver a common language for communication;
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Ensure the right activities are measured (i.e. to avoid behavioural displacement); and
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Can be proven to ensure information integrity (i.e. to avoid employee gaming).10
Good performance targets (Step 3):
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“Are explicitly defined in terms of owner, unit of measure, collection frequency, data
quality, expected value (targets), and thresholds;”11
•
Provide the appropriate amount of challenge, while remaining achievable;
•
Are balanced between short-term and long-term incentives; and
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Involve employees in setting targets to increase their commitment to the desired outcome.
Good rewards (Step 4) must be based on the expectancy theory12 and attempt to be as objective
as possible. According to Victor Vroom of the Yale School of Management:
[The expectancy] theory emphasizes the need for organizations to relate rewards directly to performance
and to ensure that the rewards provided are those rewards deserved and wanted by the recipients.13
9