Firms are increasingly implementing new performance measurement systems to track nonfinancial metrics such as customer and employee satisfaction, quality, market share, productivity, and innovation. This study examines the implications of nonfinancial performance measures included in compensation contracts on current and future performance. Contextual factors, environmental factors, and strategic plans vary across firms and, in turn, adopting appropriate nonfinancial measures determines the performance consequences of such measures. Our findings support the contention that firms that employ a combination of financial and nonfinancial performance measures have significantly higher mean levels of returns on assets and higher levels of market returns. Although we find evidence that the adoption of nonfinancial measures improves firms' current and future stock market performance, we find only partial support for accounting performance improvements. Overall, the results indicate that the association between the use of nonfinancial measures and firm performance is contingent on the firm's operational and competitive characteristics.

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This study empirically investigates firms' decisions to retain the use of nonfinancial performance measures as part of the compensation contracts following their initial implementation. Using three-stage regression and survival analysis, we provide explanations for the decision to retain the use of nonfinancial performance measures after controlling for possible endogeneity. Based on a sample of firms that used nonfinancial measures during the period 1993–1998, we find that the appropriate match of nonfinancial measures and firm characteristics and subsequent enhanced performance are crucial factors in deciding whether a firm will retain nonfinancial performance measures in compensation contracts. The analyses provide evidence that the effects of significant firm characteristics on the decision to retain nonfinancial performance measures are time invariant while the effects of performance are time variant during the study period. The results suggest that adverse performance is a reflection of a nonoptimizing initial adoption decision of nonfinancial performance measures while the decision to discard their use in light of the unfavorable performance is an indication of an optimizing decision.

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If you would like to write for this, or any other Emerald publication, then please use our Emerald for Authors service information about how to choose which publication to write for and submission guidelines are available for all. Please visit www.emeraldinsight.com/authors for more information. About Emerald www.emeraldinsight.comEmerald is a global publisher linking research and practice to the benefit of society. The company manages a portfolio of more than 290 journals and over 2,350 books and book series volumes, as well as providing an extensive range of online products and additional customer resources and services.Emerald is both COUNTER 4 and TRANSFER compliant. The organization is a partner of the Committee on Publication Ethics (COPE) and also works with Portico and the LOCKSS initiative for digital archive preservation. AbstractIn this study we examine the oversight responsibilities of audit committees in the post Sarbanes-Oxley Act of 2002 (SOX) era. The results show that audit committee oversight responsibilities assigned and disclosed in proxy statements expanded post-SOX compared to pre-SOX. We design a survey instrument to measure the difference between the perceived oversight responsibilities of audit committee members and the oversight responsibilities actually assigned in the proxy. Our results indicate that although audit committees made a substantial commitment to increase their assigned responsibilities over the period of 2001 to 2004, they still need to do more to meet the many additional challenges facing them in a post-SOX environment. Overall, our results suggest that the intent of SOX-for audit committees to be more involved and active in the oversight role of an organization-is becoming institutionalized. These results should be interesting to policy makers, a variety of interest groups, and accounting researchers.