Performance-based LTI plans are only as good as their performance measures. While they can focus management on driving shareholder value, they carry significant risk of unintended consequences. How many plans never deliver—or over-deliver—because the metrics were incompatible with the intended results? Consider the dangers of poor measurement: the plan won’t match current imperatives or lead to long-term value enhancement. It may encourage counter-productive behavior, reward mediocre performance, or set the bar so high motivation fizzles and retention sags.

Selecting the right metrics is a challenge, and while no sure-fire approach exists, we offer the following guidance.

1. Start with unbundling key outcomes to identify the most important drivers of value and strategic success.
   
   
2. Isolate the leverage points to pinpoint those that have true impact. This requires thinking about the customers and the competition. The right measures are those that build customer value and represent significant improvement opportunities versus competitors.
   
   
3. Bake the measures into performance management and the incentive program and hold employees accountable for value creation.

For more discussion on the topic, “Mobilizing and Engaging an Organization to Build Enduring Value” details the unbundling process and includes a case study of a regional bank that used the approach to execute strategy, heighten customer awareness and manage costs more effectively.