Strategic Factors and Performance Measures

People tend to act rationally in most cases in spite of their inherent biases, and one aspect of rationality is that people respond to rewards in a ­positive fashion. There are a wide variety of rewards that people may value. Some of them are intrinsic, such as the good feeling we get when we do ­something well. Many of them are extrinsic, such as recognition from other people, special privileges, financial rewards, and other forms of compensation. So a firm that desires to motivate employees and other stakeholders to participate with the organization in productive ways needs to make sure that systems reward such behavior.1

Using Stakeholder Utility Functions

In order to better understand ...

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