Procedural justice in managerial performance evaluation: Effects of subjectivity,relationship quality,and voice opportunity

This study investigates the effect of subjectivity in performance evaluation on managerial perceptions of procedural justice. Using survey data from a sample of 317 managers, we examine two forms of subjectivity: use and weight of subjective performance measures and ex post flexibility in the weighting of multiple performance measures. We also examine the interaction effects of two contextual factors, superior–manager relationship quality and voice opportunity, on the association between subjectivity and perceived procedural justice. The results suggest that only the superior's use of ex post flexibility in weighting multiple performance measures adversely affects managers' perceptions of procedural justice. Moreover, superior–manager relationship quality reduces the negative effects of ex post flexibility in weighting multiple performance measures on procedural justice, whereas voice opportunity amplifies this negative effect. These findings have practical and theoretical implications, as they shed new light on the trade-off between the informative benefits and perceived unfairness of incorporating subjectivity into performance evaluation.     

Synthesizing enterprise data to strategically align performance: The intentionality of strategy surrogation

Strategic performance measurement systems (SPMS) are employed by senior management as a means of translating strategy into performance measures. Recent research suggests that this translation can lead managers to focus on personal performance measures as opposed to overall organizational strategy—a phenomenon referred to as strategy surrogation. Emerging technologies are increasingly used to operationalize SPMS via smart phone/tablet/laptop formats that inherently promote the use of small subsets of performance measures and have the potential to exacerbate strategy surrogation effects. This study explores executive managers' motivations in deploying dashboards and the resulting effect on operational managers' focus on associated performance measures. An exploratory cross-sectional field study is conducted with 27 executive to mid-level managers to establish a theoretical model explaining how and why organizations deploy dashboards and why managers use dashboards to facilitate their activities and decisions. Despite concerns over the propensity of managers to focus on performance measures and lose sight of strategic objectives (i.e. strategy surrogation), the interview data indicate that executive management intentionally designs dashboards to achieve strategy surrogation. The impact of this intentional surrogation appears to arise through operational managers' beliefs that dashboard measures align with organizational strategy and lead to improved managerial and organizational performance. However, this relationship between perceived alignment of performance measures and managerial and organizational performance is mediated by dashboard quality and information quality. These findings have important implications as the effects of SPMS on strategy surrogation are further explored by researchers, and as system designers consider the side effects of emerging technologies on effective strategic performance measurement.     

Integrative strategic performance measurement systems,strategic alignment of manufacturing,learning and strategic outcomes: an exploratory study

There is considerable interest in the role of strategic performance measurement systems (SPMS), such as balanced scorecards, in assisting managers develop competitive strategies. A distinctive feature of SPMS is that they are designed to present managers with financial and non-financial measures covering different perspectives which, in combination, provide a way of translating strategy into a coherent set of performance measures. There appears to be wide variation in how these systems are configured. However, as yet, there has been little consideration given to identifying underlying information characteristics that might help explain how the systems have beneficial effects. This study identifies a key dimension of SPMS, integrative information, as being instrumental in assisting managers deliver positive strategic outcomes. Three interrelated dimensions of integrative SPMS were identified in this study. The first, strategic and operational linkages, was a generic factor that captures the overall extent to which the systems provide for integration between strategy and operations, and integration across elements of the value chain. The second attribute, customer orientation, focuses on customer linkages and includes financial and customer measures. The third dimension, supplier orientation, is based on linkages to suppliers and includes business process and innovation measures. A model is developed that predicts that integrative SPMS will enhance the strategic competitiveness of organizations. It is proposed that the influence of integrative SPMS on strategic outcomes is indirect through the mediating roles of alignment of manufacturing with strategy and organizational learning. Data from a survey of 80 strategic business units provide varying support for the proposed relationships.     

The effects of incentive subjectivity and strategy communication on knowledge-sharing and extra-role behaviours

This study examines the effects of performance measurement system design on employees’ willingness to share knowledge and their general tendency to pursue extra-role behaviours. Two key design issues are examined, namely, incentive scheme subjectivity and communicating the value of human-based intangible assets through a strategy map. Using a controlled experiment we found that employees are more willing to share knowledge with a co-worker (even if it means diverting resources away from incentivised areas) under a subjective weighting scheme than a formula-based scheme. In addition, we found an interaction effect where the communication of the strategic value of human-based intangible assets increases employees’ general tendency to pursue extra-role behaviours under a subjective weighting scheme, but decreases this tendency under a formula-based scheme. Our study contributes to the performance management literature and has implications for practice by providing empirical evidence demonstrating how the design of performance measurement systems can motivate discretionary behaviours in relation to performance areas that are not recognised by the formal incentive scheme.     

组织公平、组织认同感与组织公民行为关系的实证研究

本文以16家企业的181名员工为调查对象,运用统计方法对组织公平、组织认同感与组织公民行为关系进行了实证研究。结果发现：国内员工的组织认同感主要是员工对组织的情感认同,组织公平是影响组织认同感的重要因素,组织认同感对组织公民行为具有显著的影响。这些研究结果为国内企业员工组织认同理论提供了证据支持。     

Are Employee Selection and Incentive Contracts Complements or Substitutes?

There is a debate in the literature as to whether employee selection is a substitute or complement to incentive contracting. We argue that incentive contracts and selection can be both complements and substitutes conditional on the contracting difficulty faced by the firm. We examine these control choices in a setting where contracting difficulties arise due to the firm's choice of strategy and from the volatility created by the firm's external environment. We select a firm's commitment to organizational learning (OL) as our strategic choice variable as this provides a useful proxy for identifying settings where explicit incentive contracting is difficult. The results show that, as firms become increasingly committed to OL, incentive contracts and employee selection operate as complements. However, with a high commitment to OL and an increasing level of external volatility, contracting on performance measures will become less effective. In this context, our results indicate that there is a substitution effect toward employee selection.     

Using strategic performance measurement systems for strategy formulation: Does it work in dynamic environments?

This paper examines how strategic performance measurement systems (SPMS) influence organisational performance through the shaping of the strategic agendas and strategic decision arrays that result from the processes of (re)formulation of intended strategies. Using a combination of archival and survey data collected from 267 medium and large Spanish companies, we find evidence supporting a positive association between SPMS and organisational performance that is mediated by the comprehensiveness of the strategic decision arrays. We find this mediation is negatively moderated by the level of environmental dynamism, so that the comprehensiveness of strategic decision arrays that result from strategy (re)formulation processes mediates the association between SPMS and organisational performance when environmental dynamism is low, but not when environmental dynamism is high.     

Auditor independence, executive pay and firm performance

This paper investigates whether compensation committees actively intervene to adjust accounting performance‐based incentive schemes for the real, or perceived, reduced earnings credibility signalled by the purchase of non‐audit services. Using a nonlinear, two‐stage least‐squares method that accounts for the simultaneity of executive pay, firm performance and non‐audit fees, we find a significant negative relationship between non‐audit fees and the sensitivity of chief executive officer (CEO) pay to firm performance. Point estimates suggest that the reduced weight applied to accounting performance lowers the incentive component of executive pay between roughly 5 and 8 per cent for the CEO of the ‘average firm’.     

企业员工薪酬公平感的中介作用:基于金钱崇拜与组织公民行为的关系

选取297名企业员工为样本, 通过问卷调查, 分析企业员工金钱崇拜心理与其组织公民行为之间的关系, 并探讨薪酬公平感在金钱崇拜与组织公民行为关系中的中介作用。结果表明: 员工金钱崇拜与组织公民行为之间显著正相关;员工薪酬公平感对金钱崇拜与组织公民行为关系起到部分中介作用。     

Valuing executive stock options: performance hurdles, early exercise and stochastic volatility

Accounting standards require companies to assess the fair value of any stock options granted to executives and employees. We develop a model for accurately valuing executive and employee stock options, focusing on performance hurdles, early exercise and uncertain volatility. We apply the model in two case studies and show that properly computed fair values can be significantly lower than traditional Black–Scholes values. We then explore the implications for pay-for-performance sensitivity and the design of effective share-based incentive schemes. We find that performance hurdles can require a much greater fraction of total compensation to be a fixed salary, if pre-existing incentive levels are to be maintained.     

Evaluation of Subjectivity in Incentive Pay

The study aims to investigate the determinants of subjective bonus payouts in the UK financial industry. Bonuses are increasingly linked to wider business goals, such as quality and customer service, firm reputation and employee hiring and retention policies, thus replacing the traditional focus on output or profit measures. A new conceptual work on subjectivity is used to evaluate these bonus practices. Results indicate that a variety of contextual factors have influenced the firms to make greater use of subjectivity in bonus payouts. Of these, organizational interdependency appeared to be the most forceful factor, followed by management’s strategic focus, long-term investment in intangibles, economic constraints, performance target difficulty, and competition. The analysis suggests that subjectivity acts as a mechanism that aligns the interests of individual employees with the firm’s performance goals. The study also draws attention to the costs of subjectivity in performance evaluation.     

An analysis of changes to a team-based incentive plan and its effects on productivity,product quality,and absenteeism

Using data from three production units of a large manufacturing plant that employs production teams in its assembly operations, this paper examines how changes made to an existing team-based incentive plan affects labor productivity, product quality, and worker absenteeism. The firm switched from a piece-rates contract and an attendance bonus and instituted a two tier incentive plan comprising two different but complementary performance-based bonus schemes: one tier based on individual team performance and the other tier on plant-wide performance. The incentives were introduced concurrently with management control initiatives intended to facilitate cooperation and monitoring among the teams. I find significant productivity gains and improvements in quality and absenteeism associated with the new incentive plan. These findings underscore two important points that have not been emphasized in existing empirical studies of incentive pay: incentive contracts for teams generate superior performance using combination of incentives, and the need to introduce organizational changes to facilitate cooperation and peer monitoring in tandem with incentive pay to capture greater incentive effects in team production.     

Optimal contracts for research agents

We study the agency problem between a firm and its research employees under several scenarios characterized by different Research and Development (R&D) unit setups. In a multiagent dynamic contracting setting, we describe the precise pattern of the optimal contract. We illustrate that the optimal incentive regime is a function of how agents' efforts interact with one another: relative performance evaluation is used when their efforts are substitutes, whereas joint performance evaluation is used when their efforts are complements. The optimal contract pattern provides a theoretical justification for the compensation policies used by firms that rely on R&D.     

Accident Year Development, Bonus Banks, and Insurance Incentive Compensation

Insurance claims can take years to resolve, which makes insurance performance measurement—and incentive compensation based on such measurement— challenging. The insurance industry utilizes a method of analysis called accident year analysis to manage the temporal challenge inherent in insurance claims. Despite the managerial and economic utility of this method of analysis, it has generally not been applied to incentive compensation programs for insurance company executives and employees. This article will explain accident year analysis, and will show how it can be merged with the bonus bank concept and the Insurance Performance Measure, which is an insurance economic profit metric, to construct an economically consistent insurance incentive compensation program.     

Compensation and Incentives: Practice vs. Theory

A thorough understanding of internal incentive structures is critical to developing a viable theory of the firm, since these incentives determine to a large extent how individuals inside an organization behave. Many common features of organizational incentive systems are not easily explained by traditional economic theory—including egalitarian pay systems in which compensation is largely independent of performance, the overwhelming use of promotion-based incentive systems, the absence of up-front fees for jobs and effective bonding contracts, and the general reluctance of employers to fire, penalize, or give poor performance evaluations to employees. Typical explanations for these practices offered by behaviorists and practitioners are distinctly uneconomic—focusing on notions such as fairness, equity, morale, trust, social responsibility, and culture. The challenge to economists is to provide viable economic explanations for these practices or to integrate these alternative notions into the traditional economic model.     

An Analysis of the Relation between the Stewardship and Valuation Roles of Earnings

In this paper, we seek a deeper understanding of how accounting information is used for valuation and incentive contracting purposes. We explore linkages between weights on earnings in compensation contracts and in stock price formation. A distinction between the valuation and incentive contracting roles of earnings in Paul [1992] produces the null hypothesis that valuation earnings coefficients (VECs) and compensation earnings coefficients (CECs) are unrelated. Our empirical analyses of the relations between earnings and both stock prices and executive compensation data at the firm and industry levels over the period 1971–2000 rejects Paul's [1992] hypothesis of no relation. We also document an increasing weight over time on other public performance information captured by stock returns in the determination of cash compensation. Specifically, we find that the incentive coefficient on returns is significantly higher in the second of two equal sample subperiods relative to the incentive coefficient on earnings.     

Performance measures,consensus on strategy implementation,and performance: Evidence from the operational-level of organizations

In this article, we examine how consensus between operational-level managers and employees on strategy implementation affects the effectiveness of performance measures and employee performance. We use field-based surveys and proprietary archival data from a Taiwanese financial services company to answer our research questions. Consistent with the predictions of person–organization fit theory, we find that consensus on the implementation of the customer-oriented strategy is positively associated with frontline employees’ performance. Our results also indicate that the incentive effect of using performance measures in performance evaluation and promotion is stronger for employees with a higher level of consensus. Our findings suggest that consensus is critical to the success of an organization’s strategy implementation and the effectiveness of performance measures.     

Business strategy,executive compensation and firm performance

We investigate the impact of business strategy on the use of performance‐linked compensation (PLC) and long‐term incentive plans. We also examine the relation between strategy and compensation structure fit and performance. Using cluster and content analyses to classify a firm’s business strategy, we predict and find that product differentiation firms use a higher proportion of PLCs than cost‐leadership firms. Furthermore, we find that the misfit between business strategy and compensation structure has a negative impact on performance. This study contributes to the executive compensation literature by recognizing that business strategy influences the compensation structure and that a strategy and compensation structure misfit negatively affects performance.     

Organizational justice and turnover in public accounting firms: a research note

This study investigates the links between organizational justice and turnover at large public accounting firms. The primary justice issue discussed in the study is the perceived fairness of decisions involving pay and promotions. Fairness is examined in terms of the consistent application of standards across individuals in the firm's decision-making. To explore these issues, a survey was distributed to three large accounting firms in a major Canadian metropolitan area. Survey results from 76 accountants suggest that fairness perceptions influence turnover intentions through the intermediaries of organizational commitment and job satisfaction.     

Dynamic Agency and the q Theory of Investment

We develop an analytically tractable model integrating dynamic investment theory with dynamic optimal incentive contracting, thereby endogenizing financing constraints. Incentive contracting generates a history‐dependent wedge between marginal and average q, and both vary over time as good (bad) performance relaxes (tightens) financing constraints. Financial slack, not cash flow, is the appropriate proxy for financing constraints. Investment decreases with idiosyncratic risk, and is positively correlated with past profits, past investment, and managerial compensation even with time‐invariant investment opportunities. Optimal contracting involves deferred compensation, possible termination, and compensation that depends on exogenous observable persistent profitability shocks, effectively paying managers for luck.