chapter  4
16 Pages

Performance measurement issues, incentive application and globalization


Adopting an incentive pay scheme does not guarantee better organizational performance. The effectiveness of an incentive system is closely related to the appropriateness of its performance measures (Indjejikian, 1999). Thus, choosing which performance measures to use in an incentive system is a central issue for most organizations. The performance measures used for incentive purposes communicate strategic priorities and motivate employees to perform and behave as expected by the management team (Milkovich and Newman, 2008). That is in theory, but in practice the reality is somehow different. If the wrong performance measures are used in incentives, dysfunctional behaviors and distorted performance may be created (Austin, 1996; Ridgway, 1956).