Setting the Standards
Performance Targets and Benchmarks
Carolyn J. Heinrich
A key element in the design of performance measurement and accountability systems is the establishment of appropriate benchmark levels (or standards) of performance to guide the evaluation of program outcomes. Performance benchmarks shape system incentives and influence the responses of public managers and staff operating programs. In systems with rewards and sanctions linked to results, performing above or below the standards can have important short-term consequences (e.g., budgetary rewards or revisions, positive or negative recognition), as well as long-term ones (e.g., promotion, structural reorganization).
In this chapter, we review the literature in information economics, contract theory (see, for example, Dixit  and Prendergast ), and public administration to draw out theoretical implications for the construction of performance standards in public organizations.1 We then assess alternative methods that are commonly used to construct performance standards and consider the relevance of these lessons for the design of performance measurement systems in public programs. An important premise of our work is that the method used to construct performance standards can change the way employees behave and influence the internal efficiency of organizations. Focusing in particular on performance benchmarking in U.S. workforce training programs (i.e., JTPA and WIA programs), we assess whether the design of performance standards in these programs is efficient and consistent with basic principles derived from theory.
The exercise of performance assessment clearly serves important functions in public organizations other than promoting efficiency.