There are lots of reasons to be skeptical and worried about this initiative, it seems to me; they are spelled out better than I can do so here by Ryan Netzley in a posting he did some time ago. Illinois taxpayers certainly have a right to make sure that SIUC is not squandering their money. But it is particularly rich that the legislature is meddling more in university affairs while state funding levels, as a proportion of overall spending, have been in steep decline for years. It is also the case that outsiders' analysis of SIUC "performance" will increase the power of the bean counters on campus, with their relentless emphasis on recruitment and retention.
While Simon emphasizes that many different measures of performance will be used, I have a sneaking suspicion that the ones that carry the most weight will not be the qualitative measures faculty employ internally in assigning grades (the analogy she uses), but measures that are easily quantifiable by outsiders, and quantifiable in terms of money: retention rates, graduation rates, in short how many students you are giving degrees to and at what expense. Programs are measured solely by their credit hour production, or the number of majors they produce, rather than on their overall contribution to the intellectual climate on campus, and their intrinsic importance to a university education.
I do not deny that figures like graduation rates are important. For example, some faculty may have unrealistic expectations of their students; others may do a lousy job of helping students meet rational expectations. I've argued in defense of administrative attention to classes where a large proportion of students routinely fail or get a D (including, alas, some that I have taught). Faculty teaching such classes should take a hard look at what they are doing. But only they can decide whether and how to modify their teaching. For such measures are at most half the story: they fail to measure whether students who receive degrees have learned anything. Some faculty who hand out many Ds are stellar teachers; some who hand out mainly As, thus efficiently sending students along the graduation pipeline, are not. "Performance based funding" will likely ensure that "efficiency", degrees per buck, increases the pressure on faculty to lower standards and hand out high grades.
Our administrators have been pretty fulsome in their support of this initiative. I would like to think that they are doing so in some large part to ensure that universities are designing the measures that will be used to evaluate their performance, rather than allowing politicians to do so on their own. But it is also true that "Performance Based Funding", like the drive to beef up assessment on campus, is part of a larger societal managerial fetish, the belief that capable managers, armed with financial incentives, can squeeze more and more efficiency out of the organizations they manage. But the result in this case may well be to waste money on management and administration while disenfranchising the faculty professionals who are the best judge of their students' performance.
I think we would be better off having faculty ensure that administrators are spending money on the right priorities--while administrators, in turn, play their traditional role in evaluating faculty. It's called shared governance. Perhaps you've heard of it. Instead we're likely to get more administrators filing reports for politicians.