(Performance measurement) Boston Scientific is giving Baxter International Inc. a run for its money.

Boston Scientific, a small but growing maker of medical devices, doesn V compete directly with health-care giant Baxter. But Baxter's top executives are keenly watching the performance oftheir new rival. Their compensation, in part, is based on it.

Baxters payout of stock to its senior managers is linked to how the company's shares perform compared with the Standard & Poor's Medical Products and Supplies Index, which includes the two companies plus seven others.

It's the latest twist in executive pay: awarding stock benefits according to how well a corporation stacks up against its rivals. Many comparisons, like Baxter's, are based on total shareholder return, though some use other measures such as return on assets. Whatever they use, the purpose is the same: to ensure that managers keep a gimlet eye on other companies competing for the same customer and investor dollars.

[SOURCE: Lauren Young, “Compare and Contrast: More Pay Plans are Linked to How Well a Corporation Fares Against Its Rivals. The Problem: Finding an Appropriate Rival,” Wall Street Journal (April 11, 1996), p. R8. Reprinted by permission of The Wall Street Journal, © 1996 Dow Jones & Company, Inc. All Rights Reserved Worldwide.]

Write a report in which you discuss the benefits and risks of evaluating and rewarding performance based on comparisons with competitors.

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