Studies in Managerial and Financial Accounting, Vol. 18, Performance Measurement and Management Control: Measuring and Rewarding Performance

Citation

Hunt, C. (2010), "Studies in Managerial and Financial Accounting, Vol. 18, Performance Measurement and Management Control: Measuring and Rewarding Performance", Journal of Accounting & Organizational Change, Vol. 6 No. 4, pp. 505-508. https://doi.org/10.1108/18325911011091846

This book represents the continuation of a series of books publishing selected contemporary management accounting research papers presented at the Performance Measurement and Management Control conferences[1]. The papers in the book have been selected from the 120 papers presented at the 2007 conference. The majority of the papers published are of an empirical nature and focus on four aspects of measuring and rewarding performance, the conference theme. Those four aspects are: measuring and rewarding performance, evaluating and motivating employee performance; evaluating performance of organizational units; and rewarding performance.

Setting the scene, Marc J. Epstein examines the current research gaps in understanding the relationship between performance measurement, rewards, and performance. The focus of this examination is framed in terms of bridging an organization's financial performance needs and social performance needs. Employing research based on the gaming industry, the microfinance industry, and the corporate social responsibility function, the growth in organizational complexity is highlighted. This growth in organizational complexity, it is argued, requires organizations to moderate reliance on the narrower, financially focused, formal performance measurement, and reward systems. Epstein (pp. 12‐14) proposes a more balanced model of implementation, which includes both intrinsic and extrinsic rewards. He argues that researchers must examine informal systems effects in addition to the formal systems when evaluating drivers of success (p. 13). Unfortunately, increases in organizational complexity have, in part, contributed to a performance and reward systems gap. Seven areas of research are identified to address this gap (pp. 14‐15).

Jean‐Francois Manzoni provides the research scope setting of this book. The focus here is on the complexity of reward systems and shaping employee behaviour. The author's review of the economics, psychology, and marketing literatures suggests that an intense incentive alignment approach may be self‐fulfilling hence counter‐productive (p. 19). A fundamental issue for management accounting research is highlighted in that, “reward systems incorporate more subjectivity than much accounting and control research tends to consider” (p. 25). This point is reinforced through the identification of a range of factors and levers that can affect employee behaviour. A framework (p. 26) is provided including: key performance indicators (KPIs) and incentives; organizational structure; processes; senior management behaviour; technology; and individual wants and needs. A key observation in terms of this framework is that the role of quantification is primarily constrained to only one factor/lever, KPIs, and incentives. While Manzoni recognises incentives‐linked, quantitative measures of performance are an important research area, the level of that recognition is qualified by a “but” – “but I wonder whether we are devoting too high a proportion of our time to what is only a small component of the reward system” (p. 35). To assist in broadening accounting and control research, Manzoni suggests that the accounting and control community “become more cognizant of […] developments in other fields, including those cited in this chapter, i.e. psychology, economics and marketing” (p. 39).

In completing the setting of the scene for this book, Antonio Davilia, analyses the 120 conference papers presented in terms of: where research is happening? What topics are being researched? what methods are being used? and what theories are being used? The analysis then considers how this research might be improved. Davila observed that an overwhelming majority of the papers are empirical (p. 44). Of the 120 papers, just over 50 percent focused on large companies, with around 17 percent focusing on the public sector. The rest were roughly evenly split between health care, small, and medium companies. In terms of what was being researched, just over 50 percent of papers examined performance measurement and management control, with just over 16 percent concentrating on performance evaluation/rewards and, compensation. Balanced Scorecard (BSC) research contributed around 13 percent of papers. Other topics included: budgets; IT systems; cost systems; governance; public policy; and transfer pricing. Case studies (33 percent) and surveys (29 percent) dominated the methods used. Other methods included: (informed) opinion/theory; field data; prescriptive; experiment; analytical models; and simulation. In terms of theories being used, the largest single group were theory‐less (around 24 percent) followed by papers with theoretical backgrounds from: psychology and organizational theory (32.5 percent); and management control theory and economics/rational (24 percent). Others were from the backgrounds of sociology, strategy and grounded theory. Davilia comments favourably on the quantity, quality, and diversity of papers in terms of “tackling questions that are important for theory development but also for managers and, diversity in terms research approaches, theoretical perspectives, and research settings” (p. 63).

In terms of evaluating and motivating employee performance, three different aspects are examined within the book: incorporating job performance measures and personality constructs in promotional decision making. The usefulness of tying post‐completion reviews to rewards; and the importance of justice as a mediator between reward systems and managerial motivation. Mishken and Juhasz's study, incorporating two cases, examines performance ratings and personality measures, respectively, focusing on identifying factors that may improve organization promotion decisions. The first case employs a behavioural framework in a longitudinal study of court clerks. The second employs a psychology‐based framework to examine the promotion success factors for entry level Bailiffs. The findings suggest that including individual's performance ratings and personality measures may improve selection decision outcomes for the organization. Linder focuses on tying extrinsic reward(s)/punishment(s) to incentives in terms of motivating employee performance by examining the potential for use of the post‐completion review of capital expenditure projects. This study adopts an analytical approach, employing the social‐cognitive perspective from psychology, which is supplemented by occasional links to results from principal‐agent models. The study's results highlight the potential for unintended consequences. For example, review measures have the potential to have greater focus at the expense of project implementation performance measures. Hartmann and Slapničar “investigate how the objectivity of rewarding system affects managerial justice perceptions and there subsequent motivation” (p. 128) using the results of a survey of 161 managers from 11 commercial banks. Support was found for the perception of justice contributing to motivation and commitment. In particular, procedural justice is a crucial link between the objectivity of rewarding and motivation and the perception that rewards are fair.

Next, in raising the level of research focus to evaluating performance of organizational units, six aspects of unit performance are examined. These are: the influence of enterprise resource planning (ERP) systems on the quality, complexity and the timeliness of information and its impact on performance measurement; predicting management response rates to performance signals; the use of a Lifetime Value Scorecard in assessing marketing strategy success; an empirical assessment of the construct validity of the BSC; the impact of airport privatisation reforms on stakeholder groups and privatised airport performance assessment; and, the impact of uncertainty on budgetary slack in a BSC and accounting‐based measures (ABM) setting. A structural modelling approach, based on the extant literature, is adopted by Gabriëls and Jorissen to assess the direct and indirect effects of ERP adoption on perceived value information available for performance measurement. The findings are interesting in terms of the direct influence being contrary to expectation (negative), but the indirect influence being found to be positive. de Schryver, Eisinga, Teelke, and Poutsma examine responses to performance signals by Dutch soccer clubs' decision makers. They employ piecewise linear models in combination with three theories (Threat Rigidity Theory, a Behavioural Theory of the Firm, and the Variable Risk Preference Model) to develop their hastening and delays propositions. Soccer strategies are aligned with the organization in terms of defensive, prospector, analyser, and hybrid strategies resulting in some interesting findings.

Bonacchi, Ferrari, and Pellegrini, employing a BSC approach, develop a Lifetime Value Scorecard to investigate marketing strategy implementation success. The research setting is internet companies where the performance measurement focus is on web‐based data. Their scorecard is developed by examining a hypothetical case study, focusing on the relationship between customer data and financial data, which is assessed using the mobile value‐added services sector. The study's main contribution is in extending the role of customer value information in organizational performance measurement. Boulianne examines the construct validity of the BSC in terms of the importance and credibility management may allocate to certain BSC measures, using a multitrait‐multimethod matrix (MTMM). A field study is used, in combination with the extant literature, to select a set of measures for each of the four aspects of the BSC, followed by a survey to examine their reliability and the structure of BSC dimensions. A MTMM is then used to examine the convergent and discriminate validity of the BSC's measures. The results are interesting in terms of validating the BSC framework. Zakrzewski, adopting a qualitative approach that employs Leximancer data mining software to analyse interviews, examines the performance of a privatised airport from the stakeholder perspective. An interesting contribution of this study is the BSC and stakeholder influenced performance model developed. de Aquino, Cardoso, Pagliarussi, and Boya extend BSC research by incorporating the effects of uncertainty, payment scheme and accounting‐based measures, dispersion of payment scheme and strength of causal relations proposed in the performance measurement model to assess budgetary dynamics and budgetary slack. A longitudinal study of two strategic business units supported by a questionnaire designed to assess possible cause‐effect relations was conducted. They argue that the budgetary slack observed was impacted by uncertainty, which was moderated by the dispersion of payment scheme. No evidence was found to support mediation of budgetary slack due to ABM.

The book concludes with an examination of two aspects of rewarding performance. The first examines the links between financial performance and executive compensation. The second investigates the implications of the incorporation of individual performance evaluation (IPE) measures in CEO bonus plans. Needles, Powers and Frigo examine the practices of higher performance companies (HPC) in terms of executive compensation and financial performance employing an agency perspective. A range of financial and non‐financial performance measures related to compensation is used to compare a set of HPC with a comparable set of non‐HPC over the period 2001‐2005. They find that “HPC are more focused and unambiguous in their use of both financial and non‐financial performance measures […] and HPC outperform comparable companies on the financial measures” (p. 318). Schiehll investigates the influence of CEO IPE measures. Employing the optimal contracting hypothesis the study found that: the use of IPE measures in the CEO bonus plan is an increasing function of outside/independent directors and a decreasing function of financial performance measures; IPE use is a better explanatory of CEO cash compensation than current firm performance and governance variables; and CEO cash incentives not explained by observable performance measures or governance structure is positively associated with firm performance one year out from its award.

The content of the book is reflective of its title and provides an interesting insight on contemporary empirical research in this area of management accounting research. For the qualitative management accounting researcher, the range of relationships and inter‐relationship sources of friction/tension examined provide the potential not only to review prior works, but also to enrich future works. For quantitative management accounting researchers, a wide range of quantitative methods/approaches are presented which should be of interest, not only in terms of their application and interpretation, but also in terms of the problem and theory considerations used to support their selection. The notion of making the informal and extrinsic, formal and intrinsic represents a common thread through each of the sections and goes someway to answering the but raised by Manzoni (p. 35). For practitioners, managers, and academics alike, a number of insights provided by the studies in this book will be of interest in terms of the relationship between performance measurement and rewarding performance. The quality of this book supports the continuation, of what now must be considered a successful model, for the publishing of good quality conference papers.

Notes

Earlier volumes provide similar selected research insights from the 2005, 2003, and 2001 conferences.