'We need to distinguish between good and bad developers and promote good developers. We need an objective way to do this. We want to tie the compensation for developer to its performance. We need an Objective way to measure Developer Performance. '
A very nice and persuasive argument. Usually this ends with 'lets use a project metric to measure indivisual performance. Lets use bug/KLOC'. Remember 'what gets measured gets done'. Problem is it gets done even if it is harmful to overall goal.
Combine these two facts, and results are not difficult to predict. Developers will try to minimize bugs/kloc even if jeopardizes the project. Simplest to reduce bugs/kloc is to increase KLOC. So cut/paste instead of reuse. Initial bug/KLOC figures look good. Overtime, the project will be a mess but by then original team is out. Any other metric like time to implement a feature, bugs per feature, bugs per module all such combination result in bad metrics for measuring individual performance.
Obviously, Slowly your good people will leave, because they try to do right thing for the project and rather than get rewarded, get punished for it. The Company is on downward spiral.
It reminds me of Dilbert comment 'How to detect if your company is doomed ?', If you keep on hearing words like processes, metrics, ISO, CMM etc., your company is doomed. There is a grain of truth in it.