Performance implications of strategic performance measurement in financial services firms

This study examines the relation between measurement system satisfaction, economic performance, and two general approaches to strategic performance measurement: greater measurement diversity and improved alignment with firm strategy and value drivers. We find consistent evidence that firms making more extensive use of a broad set of financial and (particularly) non-financial measures than firms with similar strategies or value drivers have higher measurement system satisfaction and stock market returns. However, we find little support for the alignment hypothesis that more or less extensive measurement than predicted by the firm's strategy or value drivers adversely affect performance. Instead, our results indicate that greater measurement emphasis and diversity than predicted by our benchmark model is associated with higher satisfaction and stock market performance. Our results also suggest that greater measurement diversity relative to firms with similar value drivers has a stronger relationship with stock market performance than greater measurement on an absolute scale. Finally, the balanced scorecard process, economic value measurement, and causal business modeling are associated with higher measurement system satisfaction, but exhibit almost no association with economic performance.     

The effect of non-financial performance measures,organisational politics and political skill on job performance: Evidence from China

We investigate the role of organisational politics (i.e., general political behaviour, going along to get ahead and pay and promotion policies) and political skill on the relationship between non-financial performance measures and job performance, relying on a sample of manufacturing firms in China. Results suggest that non-financial performance measures positively affect managers' job performance, and non-financial performance measures reduce general political behaviour and pay and promotion policies. Results further suggest that managers' political skill positively affects job performance, and political skill also moderates the relationships between (1) general political behaviour and (2) pay and promotion policies, and job performance.     

The Relevance of Non-financial Performance Measures for CEO Compensation: Evidence from the Airline Industry

This paper investigates the role of non-financial performance measures in executive compensation. Using a sample of airline firms we document that passenger load factor, an important non-financial measure for firms in this industry, is positively associated with CEO cash compensation. This association is significant after controlling for traditional accounting performance measures (return on assets) and financial performance measures (stock returns). This evidence is consistent with the hypothesis that non-financial measures provide incremental information about CEOs actions over financial measures and hence, receive a positive weight in compensation contracts. We also explore cross-sectional differences in the importance of non-financial performance measures. We find weak evidence that CEO power and the noise of financial performance measures impact the relationship between non-financial performance measures and cash compensation.JEL Classification: J33, L25, L93, M41, M52     

Managing multiple dimensions of manufacturing performance — an exploratory study

Drawing on qualitative data collected during semi-structured interviews with 36 profit centre managers in manufacturing firms in Victoria, Australia, this study seeks to explore the mechanisms used to manage multiple manufacturing performance dimensions arising from the pursuit of profit centre strategy. Where measures capture potentially conflicting influences on the manufacturing cost function, strategy implementation is facilitated by loosening control reactions to cost variances and through explicit attempts to integrate multiple measures. However, a joint emphasis on performance dimensions relating to manufacturing efficiency and customer responsiveness emerges as problematic. In contrast, a joint emphasis on quality and efficiency is relatively easily managed. It is suggested that in the context of responsiveness strategies, the difficulty of designing complete measures inhibits the effectiveness of performance measurement systems as a facilitator of strategy implementation.     

Human capital,pay structure,and the use of performance measures in bonus compensation

Traditional financial measures have been criticized for lacking relevance in today's economy where firms are increasingly competing with intangible assets. However, perhaps this criticism is not detrimental to firms if they take actions to supplement the information contained in financial measures. Thus, it is important to explore whether and when firms recognize this potential deficiency and take action to acquire the appropriate information. This study hypothesizes that two human resource variables, reliance on human capital and the firm's pay structure, are associated with the use of non-financial measures in top managers’ bonus compensation contracts since they provide information incremental to that provided by traditional financial measures. Using archival data from 177 firms, I estimate binary and multi-response ordered logit models. The binary logit model provides evidence that labor-intensive firms have a higher probability of placing emphasis on non-financial measures (along with traditional financial measures) and a lower probability of relying solely on traditional financial measures. Moreover, this relationship is moderated by the firm's pay structure. Analysis shows that the relationship is stronger in firms that employ a hierarchical pay structure. Furthermore, the multi-response logit model extends these finding by showing that these firms also have a higher probability of relying on human resource measures.     

Getting compensation right - The choice of performance measures in CEO bonus contracts and earnings management

This paper examines whether the choice of performance measures in CEO bonus compensation contracts is associated with earnings management. From a sample of FTSE350 Index firms over the period of 2005–2014, we investigate the relationship between earnings management, through discretionary accruals and real activities management, and (1) the use of and extent of reliance on financial and non-financial performance measures in CEO bonus contracts; and (2) the use of long-term and short-term measures in CEO bonus contracts. We find less income-increasing manipulation through discretionary accruals and expenses when non-financial performance measures (NFPMs) are used alongside financial performance measures (FPMs) and when the NFPMs are used to a larger extent than FPMs. Furthermore, we find less discretionary accruals when long-term performance measures are used. This implies that non-financial and long-term measures encourage executives to work towards the long-term success of the company rather than their own short-term reward.     

Financial versus non-financial information: The impact of information organization and presentation in a Balanced Scorecard

This paper investigates how the organization and presentation of performance measures affect how evaluators weight financial and non-financial measures when evaluating performance. We conduct two experiments, in which participants act as senior executives charged with evaluating two business-unit managers. Performance differences between business units are contained in either a financial or one of the three non-financial categories. Specifically, the first experiment studies how organizing measures in a Balanced Scorecard (BSC) format affects performance evaluations. Our results show that when the performance differences are contained in the financial category, evaluators that use a BSC-format place more weight on financial category measures than evaluators using an unformatted scorecard. Conversely, when performance differences are contained in the non-financial categories, whether measures are organized into a BSC-format or into an unformatted scorecard has no impact on the evaluation. The second experiment shows that when performance markers are added to the scorecards (i.e., +, −, and = signs for above-target, below-target, and on-target performance), evaluators that use a BSC-format weight measures in any category containing a performance difference more heavily than evaluators using an unformatted scorecard. Our findings suggest that firms should carefully consider how to present and organize measures to get the intended effect on performance evaluations.     

Employee morale,non-financial performance measures,deployment of innovative managerial practices and shop-floor involvement in Italian manufacturing firms

The relationship between performance measures and the development of innovative managerial practices (IMPs) is far from clear. The deployment of IMPs often requires shop-floor involvement and this might intensify the level of importance of shop-floor non-financial performance measures (SFNFPMs) of Employee Morale. On the other hand, human resource managers have long been concerned with measures of lateness, absenteeism and staff turnover (core SFNFPMs relating to Employee Morale), but from a diagnostic rather than interactive standpoint. This study investigates whether the level of importance of SFNFPMs of Employee Morale in manufacturing firms should be ascribed to the deployment of IMPs or to shop-floor involvement (human resource) considerations. In late 2003, a survey of medium-large Italian manufacturing firms was undertaken. The Italian context was considered particularly appropriate because Italian firms lag behind in their application of contemporary management techniques, and, until the late 1990s, industrial relations were based on a conflict relationship. Our findings suggest that, contrary to human resources literature, the significant positive associations between the importance of SFNFPMs related to Employee Morale and the deployment of IMPs seem to be independent of shop-floor involvement. Furthermore, the significant positive association between training (one of the shop-floor involvement variables) and the level of importance of SFNFPMs related to Employee Morale is found to be dependent upon IMPs deployment.     

Structure,formality and the importance of financial and non-financial information in strategy development and implementation

The strategic management literature indicates that there is high variety in the form and nature of strategic processes within organizations. By contrast, writers on strategic accounting tend focus on the structure and formality of strategic activities and call for a balance of financial and non-financial information to support strategic processes. This study explores the conceptual basis for this perspective and also investigates empirically whether such characterisations hold in practice. The empirical part of the study draws on questionnaire responses by senior corporate accountants and interviews held with a subset of respondents from this group. The results indicate that strategy development and implementation activities tend to be structured and formal, and while greater emphasis is placed on financial information in strategy implementation, in strategy development both financial and non-financial information are used. Differences however prevail across firms as to what is considered to be strategic and the role played by financial and non-financial information varies across companies. A high degree of organization specificity also exists in the uses of strategic accounting information. The study found support for normative ideals within the firms investigated but high organizational particularity also pervades the deployment of strategic accounting information.     

Linking environmental uncertainty to non-financial performance measures and performance: a research note

Several previous research studies have reported mixed results concerning the direct association between non-financial performance measures and performance. The presence of environmental uncertainty on this relationship has not been established. This paper makes a contribution to this area by proposing that it is in conditions of environmental uncertainty that non-financial measures are most useful in improving organizational performance. It analyses empirical data from a sample of New Zealand manufacturing organizations to test the hypothesis that non-financial measures of performance would lead to improved organizational performance under conditions of increased environmental uncertainty. Multiple regression analysis of the data suggests that performance should be a declining function of the size of the ‘mismatch’ between an organization's environment and use of the different combinations of non-financial performance measures. Further, the paper concludes that prior mixed results may be attributed to the omission of environmental uncertainty.     

Do non-financial factors influence corporate dividend policies? Evidence from business strategy

In this paper, we examine the influence of business strategy on dividend policy. We find that firms following an innovation-oriented strategy (prospectors) pay significantly lower dividends than those following an efficiency-oriented strategy (defenders). Our cross-sectional analyses show that such association is more pronounced among firms with greater investment opportunities and superior performance. Further analysis reveals that prospectors make significantly more capital investment, consistent with prospectors paying fewer dividends to finance their investment activities. Moreover, we address potential endogeneity concerns by implementing (i) a triple-difference analysis (DiDiD) that exploits an exogenous shock that hinders innovation through curbing the supply of highly skilled employees and (ii) an instrumental variable approach. Our results are robust to a propensity-score-matched (PSM) analysis, the inclusion of individual business strategy components, and the use of alternative measures of the dependent variables. Overall, our findings highlight business strategy as an inherent and non-financial determinant of dividend policies.     

Different uses of performance measures: The evaluation versus reward of production managers

This study examines how the importance that is attributed to a variety of financial and non-financial performance measures depends on the type of use – evaluation versus reward. Survey data, collected on a sample of industrial companies, provide consistent evidence of a difference in the importance attached to performance measures for these two uses. More importance is attached to both financial and non-financial performance measures for the periodic evaluation than for variable rewards. The study also shows that the influence of production strategy and departmental interdependence on the importance attached to performance measures differs for evaluation and reward uses. A production strategy focused on differentiation by product-performance has a negative effect on the importance attached to financial measures for variable rewards but no effect on their importance for periodic evaluation. Moreover, departmental interdependence decreases the importance attached to financial measures for variable rewards but not for periodic evaluation. Departmental interdependence also has only a positive effect on non-financial measures for periodic evaluation and no effect on non-financial measures for variable rewards. Overall, the data suggest that it is essential to distinguish between different uses when studying performance measurement choices and their determinants.     

非财务指标采用的业绩后果实证研究——代理理论Vs.权变理论

对于采用非财务指标的业绩后果,代理理论和权变理论给出了不同的理论指导。本文以158家中国企业为样本,分析了非财务指标采用程度对企业业绩的影响,分别对代理理论和权变理论进行了验证。研究表明,不管企业具有什么样的权变特征,非财务指标采用的程度越高都会带来越好的企业业绩。而且,相对于选择差异化战略的企业而言,选择成本领先战略的企业,采用非财务指标后会得到更好的业绩后果。     

An exploratory study of relative and incremental information content of two non-financial performance measures: Field study evidence on absence frequency and on-time delivery

In this exploratory field study, I test the relative and incremental information content of two non-financial performance measures compared to financial performance measures for future financial performance. The proprietary database used is from the contracts of the managers of 27 responsibility centers of a large Dutch service firm. Three years of monthly observations are used for the analysis.The accounting literature is ambiguous about whether non-financial measures have relative or incremental information content, or both, beyond lagged financial measures for future financial performance. Although it is often stated that non-financial performance measures are better indicators for future financial performance than lagged financial performance, the empirical accounting research evaluates the incremental contribution of non-financial measures beyond lagged financial measures.I find that in my research context the two non-financial measures absence frequency and on-time delivery do not have more relative information content than lagged financial measures. However, the non-financial measures have incremental information content beyond the lagged financial measures for both future costs and future revenues. In addition, the individual non-financial measures have different lags for costs and revenues.     

Powerful CEOs,cash bonus contracts and firm performance

We investigate whether powerful chief executive officers (CEOs) influence the conditions of their cash bonus contracts. Specifically, we examine (i) the association between CEO power and the proportion of ex-ante cash bonus to base salary (bonus ratio), (ii) the association between CEO power and the relative use of non-financial to financial performance targets in cash bonus contracts, and (iii) the performance consequences of incorporating non-financial targets in cash bonus contracts. Results show that powerful CEOs are associated with greater ex-ante bonus ratios and higher proportions of non-financial performance targets compared to less powerful CEOs. Furthermore, the use of quantitative and corporate social responsibility (CSR)-related non-financial performance targets is positively associated with subsequent firm performance, and the use of undefined non-financial performance targets is negatively associated with subsequent firm performance. These results are robust to alternative econometric specifications and variable definitions.     

The balance on the balanced scorecard a critical analysis of some of its assumptions

In recent years academic scholars have given increasing attention to the importance of strategic measurement systems including both non-financial and financial measures. One of the approaches adopted is that of the balanced scorecard. It is distinct from other strategic measurement systems in that it is more than an ad hoc collection of financial and non-financial measures. It contains outcome measures and the performance drivers of outcomes, linked together in cause-and-effect relationships, and thus aims to be a feed-forward control system. Furthermore, the balanced scorecard is intended not only as a strategic measurement system but also as a strategic control system which can align departmental and personal goals to overall strategy. This paper first examines the extent to which there is a cause-and-effect relationship among the four areas of measurement suggested (the financial, customer, internal-business-process and learning and growth perspectives). The paper then examines whether the balanced scorecard can link strategy to operational metrics which managers can understand and influence. Finally, it discusses and suggests some improvements to the balanced scorecard.     

Delivering the goods at TNT: the role of the performance measurement system

This paper explores the characteristics of the performance measurement system atTNT (UK) Ltd.which facilitate the translation of strategy into action.TNTis a successful and growing service organization and a market leader in the overnight distribution of parcels within the U.K. The performance measurement system and how it is used atTNTare described in detail. The authors then draw on the management accounting literature to provide an analysis framework which answers three central questions for performance measurement systems: whatdimensionsof performance to measure, how to setstandardsfor those measures and whatrewardsare to be associated with the achievement of those standards. The performance measurement system atTNTis appraised against this framework. AtTNTthere are five properties of the performance measurement system which have facilitated the translating of strategy into action. Three of these relate to the framework above; the company measures the right things in that dimensions are consistent with corporate strategy, it provides standards for performance through internal benchmarking, and adopts a mixture of financial and non-financial based rewards. In addition, however, there are two further properties of the system; the use of league tables to report the relative performance of the depots, and the presence of a strong corporate champion who drives the message and importance of the performance measurement system from the centre to the depots.     

A descriptive analysis on the implementation of Balanced Scorecards in German-speaking countries

This paper provides systematic research-based evidence on the usage of the Balanced Scorecard (BSC) concept in German-speaking countries. We develop three primary types of BSC usage reflecting the successive phases in the evolution of the BSC concept and of its implementation in practice. This typology ranges from the BSC’s origin as a multidimensional framework for strategic performance measurement that combines financial and non-financial measures to its advanced usage as an integrated strategic management system that describes strategy by a cause-and-effect logic and that is linked to the reward system. We use this theoretical framework to analyze the spread, implementation and benefits of the different types of Balanced Scorecards. Moreover, the impact of size and industry on BSC usage is analyzed. Our sample consists of a clearly defined segment of the most important publicly traded firms in Germany, Austria and Switzerland and we achieved an overall response rate of 87%.     

The impact of corporate governance on financial performance of Indian and GCC listed firms: An empirical investigation

Corporate governance plays a vital role in creating a corporate culture of consciousness, transparency, and openness. In this context, this paper provides a brief view about the background of corporate governance mechanisms in India and Gulf Corporation Council (GCC) countries, corporate legal system and monitoring policies laid down by Indian and GCC governments. Furthermore, it analyzes the impact of corporate governance mechanisms on the financial performance of Indian and GCC listed firms. The study uses a sample that consists of 53 non-financial listed companies from India and 53 non-financial listed companies from GCC countries for the period 2009–2016. Results revealed that board accountability (BA) and audit committee (AC) have an insignificant impact on firms' performance measured by ROE and Tobin’s Q. Similarly, transparency and disclosure (TD) have an insignificant negative impact on firms' performance measured by Tobin’s Q. Moreover, the country dummy results show that Indian firms are performing better than Gulf countries ones in terms of corporate governance practices and financial performance. The current study is considered as a battery for further research and studies particularly in India & GCC listed firms in the context of corporate governance and financial performance.