By Amanda Ward
Meridian Compensation Partners spent a recent run of its Executive Compensation Podcast on a question that sounds almost too basic to need one: what should an incentive plan actually measure? The answer the firm kept returning to was a warning. The strongest plans don’t measure everything — they measure what matters most — and the most common failure isn’t measuring too little. It’s rewarding activity that’s easy to count in place of outcomes that are hard to (Meridian Compensation Partners, “The Difference Between Activity and Value Creation”). One line from the series stuck with us: not all motion deserves to be rewarded.
Meridian was talking to boards about executive plans, where a crowded scorecard eventually shows up in a proxy statement and a governance team prunes it. But the problem is worse one and two layers down the org chart, where no proxy statement forces the discipline and no governance team is watching. The employee bonus plan is where metrics quietly accumulate — one added here to appease a department head, another there because the data finally became available — until the plan is measuring eight things and deciding nothing.
Here’s what we think this means for HR and Total Rewards leaders designing variable comp programs. The instinct to add a metric almost always feels responsible. Another measure looks like more rigor, more fairness, more coverage of what people actually do. In our experience it is usually the opposite: every metric you add is a decision not to decide, and a plan that measures everything a person touches ends up pointing them nowhere. The work of designing a bonus isn’t gathering metrics. It’s choosing the few that matter and having the nerve to leave the rest out.
1. A plan with eight metrics isn’t eight times as rigorous. It’s a plan that decided nothing.
There’s a comfortable belief that more metrics make a bonus plan more complete — that if you can just capture enough of what an employee does, the plan will be fair to all of it. What actually happens is dilution. A bonus split across eight measures gives each one a sliver of weight too small to change anyone’s behavior, so the plan stops steering and starts merely describing. Worse, a crowded scorecard nearly guarantees that something pays out every year regardless of how the business did, because with eight dials at least a few will always land green. In our experience the plans that drive the most behavior are the ones brave enough to be incomplete on purpose — three or four metrics, each carrying enough weight that an employee can feel it move.
2. We measure activity because it’s countable, not because it matters.
Meridian’s sharpest distinction was between activity and value, and it’s the one most employee plans get wrong. Activity is easy: calls made, tickets closed, projects shipped, hours logged. It’s objective, it’s auditable, and it feels rigorous precisely because it’s so countable. But countable and important are not the same thing, and the gap between them is where a lot of bonus money goes to die. A plan that rewards activity is paying for motion — and motion is not the same as progress. The hard question, the one a good plan forces you to answer, is which of the things you could measure would, if it moved, mean the business actually got better. Usually that’s a shorter and less convenient list than the one you started with.
3. The test for a metric isn’t “can we track it?” It’s “if this moves, did we win?”
Most metric lists get assembled from the bottom up: someone asks what data the systems can produce, and the answer becomes the plan. That’s backwards. The question that belongs at the front of a bonus redesign is the outcome question — if this number improves, did the organization get something it wanted? — and only the measures that survive it earn a place in the plan. A metric that can move a full year while the business stands still isn’t a performance measure. It’s a reporting field that wandered into the comp plan. In our experience, running every proposed metric through that single test is the fastest way to cut a bloated scorecard in half without losing anything you’ll miss.
4. Every metric you add subtracts weight from the one that matters most.
This part is just arithmetic, and it’s the part teams skip. A bonus plan is a fixed pool of weight — one hundred points, no more — and every measure you add takes points away from the ones already there. Add a fifth metric and the thing you actually care most about drops from, say, forty percent of the plan to thirty. You didn’t broaden the plan; you demoted its most important goal. We’ve watched organizations add a well-meaning metric to recognize some secondary priority and, without intending to, tell every employee that the main thing now matters a third less than it did last year. Before any metric goes into a plan, the honest question is which existing goal you’re willing to shrink to make room — because you are shrinking one.
5. Activity metrics feel fair because they feel objective. They’re really just easier to game.
Part of the appeal of counting activity is that it seems unimpeachable — a number is a number, and no one can argue with the tally. But an activity target is the easiest kind of goal to satisfy without producing anything, because people optimize exactly what you pay them to optimize. Pay for calls and you’ll get calls, including the ones that should never have been made. Pay for tickets closed and tickets will close, then reopen the next morning. An outcome metric is harder to hit precisely because it can’t be hit by motion alone — it requires the result, not the appearance of effort. The objectivity of an activity measure is real; it just isn’t the same thing as its usefulness.
6. Pick fewer things, make them outcomes, and the plan starts doing the job a scorecard can’t fake.
Everything above collapses into one design move: fewer metrics, chosen for whether they signal value rather than for whether they’re easy to count. A bonus plan built that way asks more of the people who design it — you can no longer hide behind a long list — but it does something a crowded, activity-driven plan never can. It tells an employee, in a handful of measures they can actually influence, what the organization is really trying to achieve this year. That clarity is the whole point of paying a bonus at all. A plan that measures everything says nothing; a plan that measures the right few says exactly what matters.
Meridian put it to boards as a caution: not all motion deserves to be rewarded. We’d put the same challenge to anyone redesigning an employee bonus this planning season. Count the metrics in your current plan, then ask of each one whether the business would actually be better off if it moved. The measures that survive are your plan. The rest were only ever telling you what was easy to count.
If you’re looking for tools to simplify how you manage and administer bonuses — and to build plans around the few outcomes that actually move your business rather than the many activities that are simply easy to track — let’s talk.