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The vast majority of companies today use fixed performance contracts to drive performance improvement. The core elements of this contract are fixed annual targets reinforced by financial incentives. It is the intense pressure placed on meeting these contracts that leads to "gaming the numbers," as managers at every level of the firm fight tooth and nail to meet their targets and earn their bonuses. Not only is this process often stressful, but it can also lead to actions that destroy value for the firm. There are, however, a number of companies that have broken free from reliance on contracts and incentives. They have typically changed their evaluation and rewards processes from fixed to relative measures. Explores the problems of fixed contracts and how alternative rewards programs can be used to avoid gaming and provide managers with more honest numbers.

Budgeting, as most corporations practice it, should be abolished. Most other building blocks are in place, but companies continue to restrict themselves by relying on inflexible budget processes and the command-and-control culture that budgeting entails. A number of companies have rejected the foregone conclusions embedded in budgets, and they've given up the self-interested wrangling over what the data indicate. In the absence of budgets, alternative goals and measures--some financial, such as cost-to-income ratios, and some nonfinancial, such as time to market--move to the foreground. Companies that have rejected budgets require employees to measure themselves against the performance of competitors and against internal peer groups. Because employees don't know whether they've succeeded until they can look back on the results of a given period, they must use every ounce of energy to ensure that they beat the competition. A key feature of many companies that have rejected budgets is the use of rolling forecasts, which are created every few months and typically cover five to eight quarters. Because the forecasts are regularly revised, they allow companies to adapt continuously to market conditions. The forecasting practices of two such companies, both based in Sweden, are examined in detail: the bank Svenska Handelsbanken and the wholesaler Ahlsell.