Key Result Areas and Key Performance Indicators are essential for setting an effective performance-based system. Here's what you need to know.

One of the most common mistakes of business owners is to evaluate and reward their employees based on a non-measurable or subjective assessment of their work performance. For example, in one of the companies I know, the owners are evaluating the performance of their managers based on a subjective ranking of excellent, very good, average, and poor ratings.

In another company, the owners are evaluating managers based on an evaluation form template that asked questions such as (1) Did the manager properly supervise his staff? (2) Did the manager regularly reported on time?, (3) Did the manager submitted reports in a timely manner, (4) Did the manager achieve his or her targets?

And so on and so forth.