Motivational Effects of Linking Incentives to Different Measures in Strategic Performance Measurement Systems: Implications for Proactive Strategic Behavior

Abstract

The present research examines the effect of incentivizing both outcome and driver measures of SPMS on middle managers' proactivity in influencing the strategy formulation process. A case-based experiment was conducted among 74 full-time employees. The results suggest that when incentives are linked to both outcome and driver measures of SPMS, compared with when they are outcome-based and not linked to the SPMS, managers are more proactive in communicating strategy-related issues to top management. In addition, this effect of SPMS-based incentives on middle managers' proactivity is mediated by their autonomous extrinsic motivation to achieve strategic goals. The results are in general consistent with postulates of the self-determination theory of motivation. This chapter also has practical implication. Specifically, recent evidence suggests that most SPMS adopters fail to validate causal business models underlying their formulated strategies (Ittner, 2008; Ittner & Larcker, 2003, 2005). Middle managers' proactive strategic behavior may be one means to prompt top management to inspect formulated strategies and their underlying business models.

Citation

Guo, L., Wong-On-Wing, B. and Lui, G. (2012), "Motivational Effects of Linking Incentives to Different Measures in Strategic Performance Measurement Systems: Implications for Proactive Strategic Behavior", Epstein, M.J. and Lee, J.Y. (Ed.) Advances in Management Accounting (Advances in Management Accounting, Vol. 20), Emerald Group Publishing Limited, Leeds, pp. 209-240. https://doi.org/10.1108/S1474-7871(2012)0000020015