استفاده های متفاوت از معیارهای عملکرد: ارزیابی در مقابل پاداش مدیران تولید

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.

Performance measurement systems are evolving to include more information on the various performance dimensions that relate to the firm’s operations (Ittner et al., 2003 and Malina and Selto, 2001). Many researchers discuss modern management accounting incorporating non-financial measures designed to reflect activities not fully captured by contemporaneous operating results (e.g. Hemmer, 1996). Despite this development, conflicting views exist on the value of using a range of performance measures. Proponents argue that multiple measures help to overcome limitations of measurement approaches that focus exclusively on a single (mostly financial) measure, as no single measure is likely to cover the range of activities needed to achieve an organization’s strategic objectives (Feltham and Xie, 1994 and Hemmer, 1996). A diversity of measures is also claimed to provide managers and employees with information to assist in their firm’s operations (Lillis, 2002 and Malina and Selto, 2001). Others maintain that multiple measures may be disadvantageous, as they may direct effort to easily measured tasks, decrease motivation by the complexity of the compensation plans, and create bias in performance ratings (Lipe and Salterio, 2000 and Moers, 2005). The empirical performance measurement literature gives mixed evidence on the factors that drive performance measurement system design and on the association with performance (e.g. Ittner et al., 2003). Moreover, this literature pays little attention to the purposes of using performance measures. This is noteworthy, because there is evidence of differences in performance measurement across purposes (Ittner et al., 2003 and Lingle and Schiemann, 1996), and because ambiguity in findings related to the associations between non-financial measures and various factors in the production setting may be explained by these different purposes (Chenhall, 2003). In this paper, performance measurement is separately studied for two distinct uses, by explicitly distinguishing between the set of measures that a production manager is presented with in the periodic evaluation and the set of measures used to determine the production manager’s variable rewards. The paper examines how varying levels of importance are attached to financial and non-financial performance measures for these two different uses and how these levels vary depending on several factors in the production setting. Doing so may resolve some of the ambiguity in previous findings. In order to identify the differences that can be expected between the importance attached to performance measures for periodic evaluation and the importance attached to performance measures for determining variable rewards, this paper draws on the classification of Demski and Feltham (1976), which points out that performance measures can play decision-facilitating as well as decision-influencing roles (see also Sprinkle (2003)). The decision-facilitating role refers to the provision of information to guide decisions and managerial action, while the decision-influencing role refers to the use of information for motivating and controlling managers and employees. In the periodic evaluation, the production manager and the superior discuss the functioning of the production department and the situation in which the department operates with the help of a set of performance measures. The performance measures are used primarily to provide information to the production manager in order to bring about better-informed decisions (decision-facilitating role). In the determination of variable rewards, the production manager’s performance is assessed based on a set of performance measures. Here, performance measures are used primarily to motivate the production manager (decision-influencing role). In the periodic evaluation, the performance measures thus will be oriented towards the decision-facilitating role, whereas in the determination of variable rewards performance measures will be oriented towards the decision-influencing role. In general, performance information for the decision-facilitating role is considered to be more neutral with regard to behavioral risks than performance information for the decision-influencing role. Incentive risks are also more clearly present in relation to the decision-influencing role. These behavioral and incentive risks should thus be taken into account especially when attributing importance to the performance measures used for variable rewards. Therefore, depending on the type of use, managers are expected to attach different levels of importance to a variety of financial and non-financial measures. The study’s contribution to the literature is threefold. First, this study contributes to the existing empirical work by looking at the importance attached to performance measures for the evaluation and reward of a production manager, in contrast to most prior empirical work on performance measurement and incentives that focuses on the CEO level (e.g. Ittner, Larcker, & Rajan, 1997), the business unit level (e.g. Govindarajan and Gupta, 1985 and Keating, 1997), or the worker level (e.g. Banker et al., 1993 and Ittner and Larcker, 2002), but largely ignores the incentive plans at the production management level. Second, the study separately analyzes and compares two different uses of performance measures, viz. periodic evaluation and determination of variable rewards. This distinction between the two uses is crucial, because performance measures play different roles in periodic evaluation and in the determination of variable rewards. To date, most of the empirical research has overlooked the different uses of performance measures (Henri, 2006). A lack of research attention to the different purposes of performance measures may also count (partly) for the limited progress in research that examines the importance attached to performance measures (see Chenhall (2003), Hartmann (2000), Chapman (1997) for critical reviews). Third, the study investigates the determinants of the importance attached to financial and non-financial measures to evaluate and reward production managers. This subset of contingency research in management accounting and control is still an area where there are a lot of open questions (see Chenhall, 2005). Specifically, the study examines the influence of production strategy, departmental interdependence, and technological complexity on the importance attached to financial and non-financial performance measures. This influence is also studied separately for periodic evaluation and for the determination of variable rewards, because the strength of the influence of these factors may well be different for periodic evaluation and variable rewards. The empirical evidence in this study is based on a survey among 84 industrial companies located in the Netherlands. In addition, multiple interviews were conducted with both production managers and management accountants to ensure good quality interpretation of the results. The study provides evidence of a higher importance attached to both financial and non-financial performance measures in the periodic evaluation than in the determination of rewards. In addition, the results indicate that the factors in the production setting driving the importance attached to these two types of performance measures do not have the same effects when the performance measures are used for periodic evaluation and when the measures are used for variable rewards. The outline of this paper is as follows. Section ‘Different roles of performance measures’ deals with the theory and develops the hypotheses. Section ‘Development of the hypotheses’ describes the research method. Section ‘Research method’ presents the results. Section ‘Results’ discusses these results and presents the conclusions.

This study examined both financial and non-financial performance measurement in a production setting. It was anticipated that, depending on the type of use, a different variety of financial and non-financial measures would be important. A specific design feature of the study is that the importance attached to performance measures is investigated both for the periodic evaluation of the production managers’ performance and for the determination of the variable rewards of the production managers. This specific design feature results in several interesting insights. First, the results show that the importance that is attached to both a set of financial and a set of non-financial measures is higher for the periodic evaluation than for rewards. This insight is interesting since most of prior research has left unanswered several questions related to the link between use of performance measures and the mix of financial and non-financial measures (Henri, 2006). This is one of few studies that separately examine the importance of a set of performance measures for the uses of periodic evaluation and variable rewards. The results therefore add substantial empirical evidence to the observation referred to in Kaplan and Norton (1996a) of a disconnection between the performance measurement system that is in place for the evaluation and the measures that are the basis for rewards. Second, the study shows that different exogenous factors drive the importance attached to performance measures for the periodic evaluation and for variable rewards. A focus of the production strategy on product-performance only affects the importance attached to financial performance measures for variable rewards and not for periodic evaluation. Also departmental interdependence has significantly different effects on the importance attached to both financial and non-financial measures for the use of evaluation and the use of rewards. These results support the ideas of Merchant et al. (2003) and Ittner and Larcker (2001) that the recognition that performance measures are used for different purposes is vital in empirical research. Third, it is important to note that the data do not provide support for any of the hypothesized effects of the exogenous factors on the importance attached to financial measures for the periodic evaluation. Apparently, the importance of financial measures for the periodic evaluation is not affected by a production strategy focusing on differentiation-related objectives, not affected by departmental interdependence, and not affected by technological complexity. These results call to mind the expectation that the exogenous factors will have a stronger effect on financial measures for rewards than on financial measures for periodic evaluation. Therefore, the absence of effects for financial measures in the periodic evaluation may well be explained by a trade-off between the first-order effects and the second-order effects. The results for the financial measures suggest that the increased need for both financial and non-financial decision-facilitating information due to increased uncertainty offsets the inappropriateness of financial performance information, which follows from, for instance, not capturing the information relevant for the strategy, and a low understanding of input–output relations. Another, perhaps complementary, interpretation is that the financial information is used in a way that is different from that often assumed in management accounting and control research. For example, Chapman (1997) argues that accounting information may well be useful in uncertain contexts, but the systems are used as “learning machines” rather than as “answer machines”. It is also interesting to note the contrast with the non-financial measures, as both a focus on delivery/flexibility and interdependence increase the importance attached to non-financial measures for the periodic evaluation. The results for the non-financial measures may well be explained from the increased value of performance measurement information in the decision-facilitating function in an uncertain context and from the specific ability of non-financial measures to capture the performance dimensions related to differentiation-related objectives and from the particular capacity of these measures to provide insight into input–output relations (Chenhall & Morris, 1986). The findings implicitly also suggest that, for the periodic evaluation, firms are adding non-financial measures to the financial measures. This provides support for the results of Widener (2004), who observed that firms do not substitute the traditional MCS for non-traditional and personnel controls, but simply add these controls to their MCS. Fourth, it is interesting to note that, for variable rewards, results are not consistent with this adding process. The data show that, for variable rewards, a production strategy focus on product-performance and departmental interdependence influence only the financial measures, while a production strategy focus on delivery/flexibility and technological complexity only affect the non-financial measures. Finally, a last insight follows also from the results for variable rewards. The absence of an effect of product-performance on the non-financial measures for variable rewards is surprising, given the claim in the literature that non-financial measures explicitly represent the critical strategic dimensions in a differentiator setting and the call for more non-financial measures in the incentive contract in such a setting (e.g. Holthausen et al., 1995). Also departmental interdependence has no significant impact on non-financial measures for variable rewards. The data seem to suggest that the additional need for non-financial performance information following from the noise in the financial measures has been equalized by an analogous increased noise in the non-financial measures themselves. Overall, the data indicate that a disconnection or gap exists between the importance attached to a set of performance measures when used for the periodic evaluation and the importance attached to these performance measures when used for variable rewards. Also, the study provides extended insight into the explanations for this gap by examining the influence of several variables capturing the production setting on this gap. The findings are however subject to several limitations too. The study suffers from some of the limitations associated with the survey method. First, using a survey implies for this study that the data only reflect the perceptions of the production managers. However, the careful validation of the instruments – established and multi-item instruments and tests of internal consistency (Cronbach’s alpha) – help to circumvent this potential drawback. Second, it is not always possible with a mail survey to understand the respondent’s point of view. The interviews were done in order to understand better the ideas and background of the respondents. Third, the results may be subject to omitted variable bias. While the study design included many independent variables and controlled for several variables that were considered likely to influence the results, it is impossible to control for all potential confounding variables. Finally, although the study includes performance measurement for the periodic evaluation and variable rewards, other elements of the compensation package may provide additional incentives that influence the results. The study points to several avenues for future research. The distinction between different purposes of performance measures is usually not made in empirical work. Based on the empirical evidence provided, this seems to be an omission in these studies. Future studies focusing on performance measurement should be aware of these complexities of measurement system design and should at least be specific about the purpose of the performance measures when designing the study. Future research could also investigate wider aspects of PMS use, for example learning, or career decisions (see also Henri (2006)) and gaps in importance attached to performance measures for these uses. Future research may be directed, in particular, to the underlying causes of the differences in performance measurement between the periodic evaluation and determination of variable rewards. What properties of performance measures drive the design of the performance measurement system used in the periodic evaluation, and what properties drive the importance of performance measures for variable rewards? This may also be helpful in explaining why some exogenous factors impact upon (specific) financial and others upon (specific) non-financial performance measures? A further avenue for future research would be to focus on the change processes with regard to performance measures. In what circumstances are new performance measures added to the traditional ones and when do we see trade-offs between different performance measures? Do we see any differences in the change processes for the periodic evaluation and for the variable rewards? Finally, this study shows that there is a difference or gap between the importance attached to different types of performance measures for the periodic evaluation and for variable rewards. This gap can be explained by differences in the properties required for these two purposes. It would be interesting to know what the consequences of such a gap are for organizational or (sub-)unit performance and for the managers’ satisfaction with the evaluation and reward system. It may very well be that a large difference between the importance attached to performance measures for evaluation and rewards makes managers less satisfied with the performance measurement system in place. Even so, given a complex production setting, the performance consequences of this difference may be positive, because especially in uncertain situations with a low understanding of input–output relations, a diverse set of performance measurement information is valuable for planning and coordination and the decision-facilitating purpose (see also Macintosh (1995)). Research could also attempt to identify possible other control mechanisms that are present when there is a large divergence between the performance measures in place for the different purposes.