Performance Metrics & Benchmarks

One of the most critical aspects of executive compensation is designating the metrics used to define and benchmark performance. The relationship between compensation and performance has increasing significance and greater validity with stronger definition of performance measures.

More importantly, the correlation between performance outcome and corresponding incentive compensation award is more easily established with more specific performance metrics. Performance metrics also need adaptability, adjusting to the issues, economic circumstances and risks that impact markets and the company.

CEL has had vast experience with performance metrics in both private and public company environments. Performance metrics must not only be fair, their measurement and corresponding potential compensation award should be agreed upon between the executive and Board of Directors/Owners, in order for an incentive compensation program to be creditable. Absolute and relative performance (vs. a peer group) measurement is an ideal structure but usually can be established only with public companies.

Defining performance metrics and benchmarks for achievement is a process and analysis which may best be developed and implemented with the assistance of CEL experts.

Corporate operating issues and changes generate needs:
  • Desire for less discretion in compensation award decisions.
  • Performance criteria which are too vague or too numerous.
  • Stronger alignment of short-term and/or long-term goals with management results.
  • Greater clarity in the “line of sight” between results and compensation.
  • Sustaining performance through challenging periods.
  • Growth in assets/employees and/or need for greater structure in incentive programs.
  • Clarity in employee understanding of evaluation procedures and measures.
CEL offers independent advice, fulfilled by:
  • Years of performance measurement of real estate financial and operating results.
  • Successful definition and implementation of effective performance measures.
  • Knowledge of the advantages and disadvantages of alternative incentive programs and associated performance measures.
  • Experience in establishing target comprehensive performance criteria/metrics – and minimum and out-performance benchmarks.
  • Balancing award structure with market conditions and strategy – mixing cash, equity and timing.
  • Knowledge of the clear distinctions of annual vs. long-term incentive performance metrics.
CEL adds value from insight and experience for decisions:
  • Building and defining performance incentive plans.
  • Definition of Target, Threshold and Outstanding levels of performance for executives and the company.
  • Developing multi-year performance criteria and awards.
  • Review and analysis of current company incentive structure(s).
  • Recommendations for incentive design, performance metrics and award criteria.
  • Clarifying performance measurement and evaluation criteria for positions, regions and departments.
  • Aligning performance measures across levels of employee/responsibility.
  • Compensation communication plans and materials.