It seems to me as though many companies have several measures that the CEO needs to hit to receive a bonus. The cluster of measures might include accounting-based financial measures, like a target for Earnings Per Share or EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization). And, the cluster of measures might include operational measures, like whether a pharmaceutical treatment meets FDA approval.

I'll point out two disadvantages that Todd Henderson raised with respect to pay-for-performance measures:

Effort substitution problem: individuals will respond to the metric measured. You might want employees to work on several activities, but if the performance metric only measures one activity, then the employees will work only on the activity measured.

Cheating: cheating may be easier, more effective, and more dangerous in pay-for-performance systems. Employees may spend more time gaming the system than working. Furthermore, the cheating may create unseen costs (the customer who doesnt come back).

You do not need to refer to those disadvantages. You can pick another. Nevertheless, I have these questions.

Required:

Why might a company use several measures in the performance metric for the CEO?

Why might a company use financial measures in the performance metric?

Why might a company use non-financial measure in the performance metric?