Determinants of divisional performance evaluation practices

Keating, Andrew

doi:10.1016/s0165-4101(98)00008-1

“…While groups or business units may operate in a relatively independent fashion, departments and teams must often coordinate their efforts or integrate their output to achieve desired results (Scott and Tiessen 1999), leading to greater use of higher-level measures (which capture these interdependencies) in departmental and team plans. The greater use of higher-level measures in plans covering more locations and a larger percentage of the organization's employees also supports claims that these measures are more informative when the plan covers a larger number of interdependent activities (Beischel and Smith 1991;Bushman et al 1995;Keating 1997).…”

Section: Level Of Performance Measurementsupporting

confidence: 55%

“…Compensation researchers argue that the effective choice of performance measures depends not only on the type of measures but also on the level of measurement (e.g., Bushman et al 1995;Keating 1997). We therefore extend the analysis to examine whether the individual performance measures are computed at the level of the unit covered by the plan (e.g., the plant) or at some higher organizational level (e.g., group or corporate).…”

Section: Level Of Performance Measurementmentioning

confidence: 99%

Determinants of Performance Measure Choices in Worker Incentive Plans

Ittner

¹

,

Larcker

²

2002

Journal of Labor Economics

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This study examines the determinants of performance measure choices in worker incentive plans. The results indicate that inform-ativeness issues such as those addressed in economic theories have a significant effect on measurement choices. However, other reasons for adopting the plans, such as upgrading the workforce and linking bonuses to the firm's ability to pay, also influence measurement choices, as do union representation and management participation in plan design. Moreover, the factors influencing the use of specific measures vary, suggesting that the aggregate performance measure classifications commonly used in compensation research provide somewhat misleading inferences regarding performance measurement choices. Disciplines AccountingThis journal article is available at ScholarlyCommons: http://repository.upenn.edu/accounting_papers/79 S58 [ Journal of Labor Economics, 2002, vol. 20 David F. Larcker, University of PennsylvaniaThis study examines the determinants of performance measure choices in worker incentive plans. The results indicate that informativeness issues such as those addressed in economic theories have a significant effect on measurement choices. However, other reasons for adopting the plans, such as upgrading the workforce and linking bonuses to the firm's ability to pay, also influence measurement choices, as do union representation and management participation in plan design. Moreover, the factors influencing the use of specific measures vary, suggesting that the aggregate performance measure classifications commonly used in compensation research provide somewhat misleading inferences regarding performance measurement choices.

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“…Top management will often lack the knowledge necessary to design a pricing system that fully reflects all the ways in which decisions of business unit managers impact on each other. 7 While we do not hypothesize a relation between information asymmetry and the weight on return measures (or any other performance measures), we do not restrict the relation between these variables to zero since extant research suggests that such a relation exists (Keating 1997;Demers, Shackell and Widener 2004). On theoretical grounds, we expect that any impact of information asymmetry on the weight on performance measures will be indirect via its impact on the authority of business unit managers.…”

Section: Sample Selectionmentioning

confidence: 99%

“…While some prior studies follow Keating (1997) and use each survey item as a separate 13 Untabulated, but available from the authors upon request.…”

Section: Authority Of Business Unit Managersmentioning

confidence: 99%

Assessing the Performance of Business Unit Managers

Lent

¹

,

Bouwens²

2006

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Using a sample of 140 managers, we investigate the use of various performance metrics in determining the periodic assessment, bonus decisions, and career paths of business unit managers. We show that the weight on accounting return measures is associated with the authority of these managers, and we document that both disaggregated measures (expenses and revenues), and non-financial measures play a greater role as interdependencies between business units increase. The results suggest separate and distinct roles for different types of performance measures. Accounting return measures are used to create the proper incentives for managers with greater authority, while disaggregated and non-financial measures are employed in response to interdependencies. JEL classification: M41

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“…Keating (1997) argues that aggregated, higher-level performance measures are more likely to be influenced by plan participants' actions when these participants represent a larger proportion of the firm. Thus, these measures should be more informative performance indicators in plans covering a large percentage of employees.…”

Section: Breadth Of Plan Coveragementioning

confidence: 99%

Determinants Of Performance Measure Choices In Worker Incentive Plans

Ittner

¹

,

Larcker

²

2001

View full text Add to dashboard Cite

This study examines the determinants of performance measure choices in worker incentive plans. The results indicate that inform-ativeness issues such as those addressed in economic theories have a significant effect on measurement choices. However, other reasons for adopting the plans, such as upgrading the workforce and linking bonuses to the firm's ability to pay, also influence measurement choices, as do union representation and management participation in plan design. Moreover, the factors influencing the use of specific measures vary, suggesting that the aggregate performance measure classifications commonly used in compensation research provide somewhat misleading inferences regarding performance measurement choices. Disciplines AccountingThis journal article is available at ScholarlyCommons: http://repository.upenn.edu/accounting_papers/79 S58 [ Journal of Labor Economics, 2002, vol. 20 David F. Larcker, University of PennsylvaniaThis study examines the determinants of performance measure choices in worker incentive plans. The results indicate that informativeness issues such as those addressed in economic theories have a significant effect on measurement choices. However, other reasons for adopting the plans, such as upgrading the workforce and linking bonuses to the firm's ability to pay, also influence measurement choices, as do union representation and management participation in plan design. Moreover, the factors influencing the use of specific measures vary, suggesting that the aggregate performance measure classifications commonly used in compensation research provide somewhat misleading inferences regarding performance measurement choices.

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Determinants of divisional performance evaluation practices

Cited by 177 publications

References 16 publications

Determinants of Performance Measure Choices in Worker Incentive Plans

Determinants of Performance Measure Choices in Worker Incentive Plans

Assessing the Performance of Business Unit Managers

Determinants Of Performance Measure Choices In Worker Incentive Plans

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