Incentive Instruments and the Weighting of Performance Measures

An Empirical Investigation of an Incentive Plan Based on Nonfinancial Performance Measures

Nonfinancial and financial performance measures: How do they affect employee role clarity and performance?

This research aims to examine the effect of bonus contracts that use financial and non-financial performance measures and examine the impact of implementing AKHLAK culture on earnings management in state-owned enterprises. In addition, this research aims to evaluate the effectiveness of implementing GCG in mitigating earnings management behaviour. To achieve the objectives of this research, we used a sample of 32 state-owned companies from 2017 to 2022 with a total of 178 data points. The analysis uses path examination to measure the influence between variables. We have found that Chief Executive Officer (CEO) career and culture negatively influence earnings management, whereas bonuses have no effect. We have also found that GCG moderates bonuses on earnings management but does not moderate CEO career and culture on earnings management. These findings have demonstrated that CEO bonus contracts based on financial and non-financial performance measures do not motivate CEOs to manage accrual earnings. The results of this research provide input for the government to increase the implementation of AKHLAK culture and appoint career directors in state-owned companies. The results of this research also provide empirical evidence that giving bonuses does not affect earnings management behaviour of the bonus contract is based on financial and non-financial performance. The results of this research are expected to provide advice to shareholders on how to use financial and non-financial measures in bonus contracts simultaneously.

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.

The prevailing literature and empirical studies on management of organizational performance stress the increasing importance of non-financial performance measures and propose companies to implement some kind of integrated performance measurement system. The purpose of our study is to investigate the characteristics of performance measurement and management in large Slovenian companies, focusing also on the progress made in the 5-year period. The analysis is based on two surveys conducted in the spring 2003 and summer of 2008. We investigate what do companies understand by “successful performance”, what are the most and the least important performance measures for companies, and what performance measurement systems do companies use. By answering these questions we discuss the impact of our results on the future development and growth of firms. The research results show that large Slovenian companies consider “successful performance” mostly in terms of implementing the strategy, followed by pursuing the goals of the owners and achieving the goals of different stakeholders. Most large Slovenian companies perceive financial performance measures as more important than non-financial, although they claim they measure both perspectives of their business. Our research results also suggest that 68% of large Slovenian companies in our sample use balance scorecard or some other integrated performance measurement system. These findings are generally in line with the existing theory and empirical evidence from other countries. Our main conclusion is that the prevailing role of financial key performance indicators in large Slovenian companies is appropriate for monitoring the effects of the current financial crisis but if companies want to succeed in the long-run they have to base their decisions also on non-financial measures that enable monitoring of many important capabilities for achieving long-term strategic goals.

This study examines the links between financial performance and executive compensation for high-performance companies (HPC). HPC display sustained and superior cash flow returns, asset growth, and total shareholder returns. In previous empirical analysis, HPC companies displayed specific identifiable financial performance drivers and measures when compared to companies in the S&P 500 (Needles et al., 2004). Most recently, HPC sustained their high performance when compared to the S&P 500 over varied economic periods. Further, the research identified operating asset management characteristics of these companies, especially as they relate to the cash cycle (Needles et al., 2004). Continuing this stream of research, this study first identifies the financial and non-financial performance measures related to compensation of top management of HPC as reported in the companies’ public disclosures. Then, these findings for HPC are matched to a set of comparable non-HPC. Finally, we evaluate the stated performance measures for executive compensation in light of the performance drivers and measures identified by previous research to be distinguishing characteristics of HPC. We hypothesize that HPC will more closely align stated performance measures for executive compensation with performance characteristics that have been shown to be characteristics of HPC. We find that HPC are more focused and unambiguous in their use of both financial and non-financial performance measures in executive compensation.

System Dynamic Modelling for a Balanced Scorecard: With a Special Emphasis on Skills, Customer Base, and Wip

In this paper, I examine the incentive effects of both performance measures and performance targets and the linkages between these two components of the incentive system. Furthermore, I examine the theoretical claim that non-financial performance measures provide subordinate managers with incentives to be long-term oriented. Finally, I examine the role of risk aversion in setting performance targets. The empirical results show that the short-term orientation of subordinate managers increases (decreases) with the difficulty of financial (non-financial) performance targets but is not related to the use of either financial or non-financial performance measures for incentive purposes. Further, the difficulty of financial (non-financial) performance targets increases with the use of financial (non-financial) performance measures for incentive purposes, which suggests that performance measures have an indirect effect on managerial behavior. Finally, the relationship between the use of performance measures and performance target difficulty is moderated by the risk aversion of the manager. That is, the relationship is less positive the higher the manager’s risk aversion, which implies that superiors take the risk imposed on the manager into account when setting targets.

Objective: The article is dedicated to the systematization and generalization of business support measures in the Russian Federation, aiming to identify their specifics and consider them for further work on transforming the business climate. Theoretical Framework: It has been established that regional businesses in Russia currently require measures that are still underdeveloped: non-financial measures and support for foreign economic activities. Method: The methodology adopted for this research comprises a review and source search, along with analysis. Data collection was primarily conducted using these methods. Results and Discussion: The results obtained revealed that the business climate in Russia has significantly changed in recent years. Positive aspects of development were described, and problems were identified with proposed solutions. Research Implications: The practical and theoretical implications of this research are discussed, providing insights into how the results can be applied or influence practices in the field of business climate dynamics in the Russian Federation. These implications may include regional business, foreign economic activities, advisory support, and project facilitation based on a “one-stop-shop” principle. Originality/Value: The text notes the diversity of regional business support measures in Russia and their uneven distribution across the country. The main focus is on financial measures such as subsidies, grants, tax rates, and incentives. At the same time, non-financial support measures and measures to promote foreign economic activities remain underdeveloped. The research findings could influence the development of more effective regional business support strategies, especially under the conditions of sanctions.

This study examines the effect of the use of multiple performance measures (a combination of financial and non-financial measures) in performance evaluations on subordinates’ job-related tension. Specifically, this study investigates whether the effect of such measures is indirect through interpersonal trust. This study hypothesizes that the relationship between multiple measures-based performance evaluation and subordinates’ job-related tension is indirect through subordinates’ interpersonal trust towards their superiors. The results, based on a sample of 70 managers, support the expectation that the use of a mix of financial and non-financial measures in performance evaluations has no direct effect on subordinates’ job-related tension. Instead, the effect of such a mix of performance measures on subordinates’ job-related tension is indirect through interpersonal trust.

O propósito principal deste estudo é investigar o relacionamento entre o uso de medidas não financeiras de desempenho e orientação temporal dos gestores ao examinar empiricamente predições normativas da contabilidade no que se refere ao relacionamento positivo entre o uso de medidas não financeiras de desempenho e orientação temporal dos gestores. Além disso, este estudo explora o efeito moderador da missão estratégica da empresa sobre o relacionamento entre o uso de medidas não financeiras de desempenho e orientação temporal dos gestores ao examinar se uma missão estratégica de longo prazo intensifica o relacionamento positivo entre medidas não financeiras de desempenho e orientação temporal dos gestores. Portanto, são desenvolvidas hipóteses referentes à associação entre o uso de medidas não financeiras e orientação temporal dos gestores, assim como, se estratégia modera esse relacionamento, tendo por base a literatura contábil relevante sobre o tema. Realiza-se um levantamento em que os questionários são enviados para o endereço eletrônico de uma amostra de gestores de nível intermediário atuando em empresas no Brasil. Utiliza-se a técnica estatística de mínimos quadrados parciais (PLS) e análise de subgrupos para testar as hipóteses de pesquisa. Os resultados indicam a presença de um relacionamento significativo entre uso de medidas não financeiras e orientação temporal dos gestores, mas, contrário às predições normativas e às expectativas deste estudo, uma orientação temporal mais de curto prazo está associada com uma maior importância relativa atribuída a medidas não financeiras de desempenho. Além disso, novamente contrário às expectativas deste estudo, os resultados indicam que a missão estratégica de uma empresa modera esse relacionamento da seguinte maneira: se perseguindo uma estratégia de construir, uso de medidas não financeiras de desempenho está negativamente relacionada com orientação temporal dos gestores. A principal implicação deste estudo é que podem existir certas situações em que o uso de medidas não financeiras de desempenho não contribui para a tomada de decisões de longo prazo. Pesquisa futura poderia explorar essas situações de modo que seja possível obter um entendimento mais amplo dos efeitos de diferentes medidas de desempenho sobre orientação temporal dos gestores.

Governance Structure and the Weighting of Performance Measures in CEO Compensation

Purpose The widespread adoption of the Balanced Scorecard has led to a need to understand how performance measures affect employees’ attitudes and behaviors. Despite the growing trend in the implementation of the Balanced Scorecard, there is little research evidence available on the behavioral outcomes resulting from the use of nonfinancial performance measures. This study seeks to address this gap by examining several behavioral outcomes, including job satisfaction, organizational commitment and managerial performance, resulting from the use of financial and nonfinancial performance measures. Methodology Data were collected using a mailed questionnaire survey to manufacturing organizations in Singapore. Path analysis technique was employed in this study to investigate the relationships. Findings The results of the study show that behavioral outcomes are indifferent regardless of the nature and type of performance measures used. However, the relationships between performance measures and behavioral outcomes are indirect through procedural fairness and trust in supervisor. Research limitations Survey questionnaire method was used in this study and there are limitations associated with survey questionnaire method. As our sample was selected from large organizations, it is unclear if our results are generalizable to small organizations. Also, as our sample was selected from the manufacturing sector, generalizing our results to the nonmanufacturing sectors should be made with caution. Practical implications This study highlights the need for organizations to pay attention to issues pertaining to procedural fairness and interpersonal trust in the design and implementation of performance measurement systems.

SUMMARY Prior research finds that companies committing fraud exhibit large inconsistencies between reported revenue growth and growth in revenue-related nonfinancial measures (e.g., number of stores, employees, patents). Prior research also suggests that auditors, on average, are not adept at identifying and constraining these differences. This article summarizes a recent study by Brazel and Schmidt (2018) that examines whether certain auditors and audit committees are able to lower fraud risk by constraining inconsistencies between financial and related nonfinancial measures (NFMs). This practitioner summary first summarizes the motivation for the study, then discusses the methods used, explains the results, and concludes with a discussion of the study's implications. Brazel and Schmidt (2018) find that auditors with greater industry expertise and tenure, and audit committee chairs with greater tenure are less likely to be associated with companies that exhibit large inconsistencies between their reported revenue growth and related NFMs (higher fraud risk). Surprisingly, they observe that audit committees with industry expert chairs are more likely to be associated with large inconsistencies than audit committees without industry expert chairs. Overall, Brazel and Schmidt (2018) conclude that the audit process can constrain fraud risk, but not all forms of audit committee expertise may be beneficial.

ACCT3323: Strategic Management Accounting