"When you try to measure people's performance, you have to take into account how they are going to react," believes Joel Spolsky, columnist with Inc. magazine (October 2008).  "Inevitably, people will figure out how to get the numbers you want at the expense of what you are not measuring, inclduing things you can't measure such as morale and customer goodwill."

He contends that incentive plans based on measuring performance always backfire because people have brains and are endlessly creative when it comes to improveing their personal well-being at everyone else's expense.

Spolsky's solution?  At his company, Fog Creek Software, he let everyone know that gaming the incentive plan was unacceptable, and those involved would be disciplined up to and including dismissal.

The moral of the story is that it is important to have measureable performance metrics that are tied to incentive bonuses, but they must be developed carefully, continuously monitored, and every-so-often altered to prevent gaming.  The alternative is going back to qualitative evaluations--and all of the sucking up that would involve.