Defining How the Performance Metric Should be Measured

Defining How the Performance Metric Should be Measured

Incentive design step

This article is referenced by our incentive design guide as step #3.

Once you have chosen a performance metric (ex: revenue, profit, or score), you have to define how it is measured (evaluated). The following choices are available to you:

• Raw value - achieve a high value for <performance metric>
• Competitive ranking - achieve the top <performance metric> within a scope (ex: territory)
• Percentage increase - achieve a % increase of <performance metric> within a time period 

In most cases, you want to measure the chosen performance metric "as is" - and so using a raw value is just fine. For example, if you selected total revenue as a performance metric, then using a high raw value means that you just want to use total revenue numbers to set sales goals. This is a safe default (and the most commonly used setting).

However, some organizations may want to use a different way to evaluate the performance metric because they want to:

• Innovate with the way rewards are granted
• Promote competition between individuals or teams / territories (ex: sales contests)
• Prefer percentage growth over numerical thresholds

We'll walk you through all available options.

High raw value

Choose a high raw value as an evaluation method for the following scenarios:

• You want to formulate goals using traditional "target numbers" (quotas)
  
• You do NOT want to promote competitive behaviors (ex: sales contest rewarding each top performing representatives within a territory)
  
• You do NOT want to use a percentage growth (or you do not have a robust enough historical basis to reliably calculate growth)

Additional configuration

When later defining attainment levels, you will need to define thresholds in terms of target raw values. For example, if your metric is total revenue, you will need to define attainment thresholds (quotas) in terms of target total revenue numbers.

Competitive rank

Choose a competitive rank as an evaluation method for the following scenarios:

• You want to promote competitive behaviors (ex: sales contest rewarding each top performing representatives within a territory)
  
• You do NOT want to formulate goals using traditional "target numbers" (quotas)
  
• You do NOT want to use a percentage growth (or you do not have a robust enough historical basis to reliably calculate growth)

Additional configuration

When later defining attainment levels, you will need to define ranking configuration. For example, if your metric is total revenue, you will need to define whether the top 1 representative vs. the top 3 representatives should receive a reward.

Increase in value

Choose a percent increase as an evaluation method for the following scenarios:

• You want to use a percentage growth as a goal (and have a robust enough historical basis to reliably calculate growth)
  
• You do NOT want to formulate goals using traditional "target numbers" (quotas)
  
• You do NOT want to promote competitive behaviors (ex: sales contest rewarding each top performing representatives within a territory)

Additional configuration

When later defining attainment levels, you will need to define thresholds in terms of target percentage growth. For example, if your metric is total revenue, you will need to define attainment thresholds (quotas) in terms of target revenue growth percentage, as compared to the previous evaluation period. Additionally, you will need to make sure there are enough past transactions so that we can have a robust historical basis to reliably calculate growth.