There are a wide array of methods that may link compensation to company performance. Some of these define “performance” broadly others define performance via more granular metrics.
Broad linkages include Employee Stock Ownership Plans (check out http://www.nceo.org, standard time or service vested stock options, restricted stock and similar forms of equity compensation and Short and Long-term incentive programs linked to Revenue, Profit Margin, Total Shareholder Return, EBITDA or similar top level metrics. Commission programs often also fit this definition. There are also formal profit sharing programs and stock purchase plans.
All of the above plans link compensation, in some way, shape or form to RESULTS.
But, results may not always be the best indicator of performance. I know that sounds odd, but consider the person who breaks a world record at the Olympics, while coming in second place to someone who performed even better. In this case the results of “2nd place” may be just OK, but breaking the world record may be deemed incredible.
Linking performance to a more granular set of metrics allows a company to compensate for driving performance, rather than the results of performance. These types of programs are often more applicable to executives at smaller companies, or individuals whose roles do not offer easy line of sight to the higher level corporate metrics. These metrics and goals can be combined with cash programs or equity programs. These plans can be complex and require consistent, frequent communication and management. But, when created and managed properly they can be incredibly effective. Most often companies see the best success when combining cash and equity with both high level and specific metrics. This allows each compensation package to be shaped to the individual or group receiving it.