Incentive Instruments and the Weighting of Performance Measures

Abstract

Research on weighting of measures often examines only one incentive at a time (usually bonus) and provide mixed findings regarding the relevance of non-financial performance (NFM) measures to evaluate and reward long-term time horizon employees. Using proprietary data from an auto dealership organization, we show that financial measures (FM) are weighted more for bonus than they are weighted for merit raise and promotion but NFM are weighted more than FM for merit raise and promotion. Thus, the temporal orientations of the measures and incentives seem to be aligned: the short-term (long-term) nature of FM (NFM) parallel’s the time horizon of the incentives. Next, our exploratory research questions find that for bonuses, both FM and NFM exert similar levels of significant and positive influence on junior and senior managers. But for promotions, the influence of FM is insignificant for both groups. In contrast, the influence of NFM on promotions is not only significant for both groups but is significantly greater for junior managers than it is for senior managers. That is, the evaluations of NFM for senior managers are less influential on their promotion than they are for junior managers suggesting that promotions for senior managers are often based on factors other than their formal performances.

Citation

Ghosh, D., Wu, A. and Lee, L.-C. (2021), "Incentive Instruments and the Weighting of Performance Measures", Akroyd, C. and Burney, L.L. (Ed.) Advances in Management Accounting (Advances in Management Accounting, Vol. 33), Emerald Publishing Limited, Leeds, pp. 209-234. https://doi.org/10.1108/S1474-787120210000033010