Measuring the performance of people, especially managers and senior executives, presents a perennial conundrum. Without quantifiable goals, it’s difficult to measure progress objectively. At the same time, companies that rely too much on financial or other “hard” performance targets risk putting short-term success ahead of long-term health—for example, by tolerating flawed “stars” who drive top performance but intimidate others, ignore staff development, or fail to collaborate with colleagues. The fact is that when people don’t have real targets and incentives to focus on the long term, they don’t; over time, performance declines because not enough people have the attention, or the capabilities, to sustain and renew it.

Yet measuring, let alone strengthening, the capabilities that help companies thrive over the long haul is difficult. These “soft” measures of organizational health—for example, leadership, innovation, quality of execution, employee motivation, or a company’s degree of external orientation¹ —are tricky to convert into annual performance metrics. Moreover, an organization’s health may not change much in a single year, and an employee’s contribution often comes down to judgments and trade-offs. What risks to take and avoid? Which people to develop, and how? Getting a handle on the employee’s personal contribution typically requires in-depth conversations and a more thorough 360-degree style of evaluation than most employees (including senior managers) generally receive. Because of all this, few companies manage people in ways that effectively assess their contributions to corporate health or reward them for improving it.

When companies do try, they often end up using metrics that are discretionary, weighted less heavily than traditional measures of performance, or applied inconsistently. One mistake is to become confused about issues that appear related to organizational health but in practice lie at the heart of an individual’s operational, day-to-day job (and are therefore more appropriately assessed in the context of immediate performance). It’s fine, for example, to judge a senior product manager’s contribution to a company’s external orientation by tracking the number and quality of the new external contacts he or she develops over a year. But it makes little sense to apply the same health test to a media relations specialist for whom meeting new people is an essential part of the role. Similarly, it wouldn’t be helpful to measure an HR manager’s contribution to leadership, capabilities, and innovation (other key features of organizational health) by tracking the time he or she devotes to building the skills of employees and training them—very much features of that person’s day-to-day performance.

Managers and others quickly recognize flaws such as these and respond accordingly. At a global consumer goods company, for example, the head of HR admitted that managers view the organization’s health-related targets as a lever to “top up” their incentive packages. That was hardly the effect the company intended, and a perception that’s proving difficult to change.

Against this backdrop, we believe it’s useful for CEOs and their senior teams to step back and collectively examine how—and in some cases whether—their people-management systems give sufficient priority to the long-term health of their organizations. This article, drawing on work we’ve done recently with several companies in sectors where execution is central to long-term success, suggests three tried-and-true ways for leaders to build health into performance management. While the specific measures of health that organizations employ will ultimately be unique to them, the principles outlined here should be applicable to any company.

[Here is the first.]

1. Root out unhealthy habits.

Senior executives know in their bones how to handle managers who don’t do well on traditional performance measures: provide clear feedback, a development plan to address the problem and build the necessary capabilities, and an evaluation to judge progress. The processes for handling such issues are second nature to most companies.

In principle, the same should go for incorporating measures of organizational health. In reality, however, the organizational processes and mechanisms companies employ may well send mixed messages about the importance of health and even undercut it. Often, it’s necessary to start by unlearning bad habits. High-hazard companies, for example, have had to do just that in the wake of much-publicized accidents and subsequent pressure from regulators and consumers for improved safety.

One such company started by conducting an audit of critical roles across the organization and compiling a list of all the key safety-related competencies required for each of them. The goal was not only to ensure that workers had the necessary technical know-how and leadership skills but also to spot HR processes, systems, or managerial-training programs the company needed to change so that problems identified at the line level could be traced to their roots.

It was one thing for the company to add more realistic emergency scenarios that line managers and their teams could act out together, another to insist that the new approach be taken seriously. Managers who struggled with the new simulations were therefore removed from their roles until they improved, even if their previous track record of operational safety had been impeccable.

Mechanisms alone, in other words, won’t cut it. Getting organizations to assess and compensate managers on their contributions to health, and to view this issue as a deal breaker (or maker) in promotion decisions, often requires a significant shift in company culture. Strong support from the CEO and executive team is a must.

The high-hazard company began to succeed with its new corporate-health agenda only when senior executives who personified the new ethic—longer-term performance as the priority—were promoted. Only then did employees start to believe the change was real. Changing promotion criteria is, of course, difficult at the best of times but particularly so if no one is ready to replace existing role holders. This reinforces the need for a strong talent pool and the importance of building health into a company’s broader talent-development strategy (and metrics on corporate health into the performance appraisals of senior managers responsible for it).