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The use and consequences of subjective performance evaluation in supervisor-employee relationships

Boek - Dissertatie

Overview of the Four ChaptersTo advance the literature on subjective performance measurement, this doctoral project consists of a literature review on this topic (chapter 1) as well as three experimental papers (chapters 2-4). These empirical papers provide better insights and concrete recommendations to organizations on how to design their performance evaluation and rewarding system in order to stimulate employee productivity and goal congruence. Chapter 1The first chapter of this dissertation consists of an extensive literature review we undertook during the first year of the Ph.D. project. The article was published in the Review of Business and Economics (Hermans et al., 2013). It provides an overview of the academic literature on subjective performance measurement in high-impact journals during the period 1977–2013 and identifies a number of research opportunities, which we address in the papers of the doctoral research project. Chapter 2The second chapter investigates, within manager-employee dyads, how managerial discretion to freely decide on the bonus size of an employee (high, low) and manager-employee compensation inequality (high, low) affect employee effort, managers’ bonus allocation and the extent to which a manager is concerned about a fair bonus allocation. Using a 2x2 experiment, we develop and find support for a causal model that explains how managers subjectively allocate a bonus within this context. More specifically, management control systems that limit managerial discretion prevent that managers act overly opportunistic and therefore cause higher bonuses for the employee compared to control systems that do not limit managerial discretion. Furthermore, control systems that limit managerial discretion improve employee effort, and managers reciprocate to this extra employee effort by offering a higher bonus to the employee. However, in case of manager-employee compensation inequality the presence of a control system that limits managerial discretion provides a manager with a legitimate excuse to act within the boundaries of the control system. As a result, focusing on long-term self-interest becomes justifiable, in contrast to paying more attention to fairness. This increased focus on long-term self-interest instead of fairness will ultimately lead to lower bonus allocations to the employee. Chapter 3The third chapter examines, in a multi-employee setting, how the accuracy of the performance information on which managers base their evaluations (high, low) and whether managers get the opportunity to write a justification on how they allocated employee bonuses (present, absent) affect managers’ estimates of employees’ procedural fairness perceptions and acceptance of differentiation in bonus allocations and managers’ compression in bonus allocations. Using a 2x2 experiment, we elaborate and provide evidence for a causal model that explains how managers subjectively allocate a bonus within this context. Higher (perceived) information accuracy increases differentiation in bonus allocations compared to lower (perceived) information accuracy. Furthermore, managers estimate employees’ procedural fairness perceptions and acceptance of differentiation in bonus allocations as higher when the performance information accuracy is (perceived as) high and when they are allowed to justify the bonus allocation to the employees compared to situations where either information accuracy or a possibility for justification is missing. Managers will consequently differentiate more in their bonus allocations to employees, in line with their estimates of employees’ perceived procedural fairness. Chapter 4The fourth chapter examines, in a multi task context, how task complexity (high, low) and employees distortion of effort allocations across tasks away from the firm-preferred equal effort allocation affect employee performance. Additionally, we investigate how a management control system consisting of detailed relative performance information and a discretionary bonus system affects employees’ effort allocation across tasks. Using two experiments, we demonstrate that a distorted allocation of effort across tasks reduces employee overall performance. However, the negative effect of the distorted allocation of effort across tasks on overall employee performance is less negative for complex tasks than for simple tasks. Concerning employees’ effort allocation across tasks, we find that, in the first period, employees will focus on the task for which they have the highest skills. Employees will focus on the easiest task in order to perform at least well on that task. However, after the provision of relative performance information and the allocation of the discretionary bonus, employees reallocate their time across tasks such that they focus more (less) on tasks for which they under(out)performed relative to their colleague. Relation between chaptersManagement control systems (MCS) include all systems internal decision makers in organizations use to help ensure that organizational strategies and goals are implemented (Horngren et al., 2015; Merchant & Van der Stede, 2007; Salterio, 2015). Any assessment of the role of MCS information starts from considering how managers make use of the information being provided to them (Otley, 1999). The particular use of the control information can be more important than the formal design of the control system itself (Ferreira & Otley, 2009). In this dissertation, we therefore focus on how decision makers make use of the information in a performance evaluation context and how this information and the MCS influence the behavior of the decision maker.One of the main goals of MCS is to temper the conflict of interest between employees and managers and to motivate employees to maximize firm value. Chapters 2-4 focus on issues in manager-employee relationships that obstruct a good implementation of organizational strategies and goals and how a deliberate choice for particular elements of the management control system can improve that implementation. Chapter 2 and 3 focus on two important problems with managers’ behavior that negatively affect employee and organizational performance: managers that act opportunistically and managers that do not differentiate in their bonus allocations. Chapter 4 focuses on the potential lack of goal congruence between organization and employee which might lead to problematic employee behavior that negatively affects employee and organizational performance. We identify MCS elements that enable managers (chapter 2 and 3) and employees (chapter 4) to make better decisions (Sprinkle, 2003).Furthermore, it is important for organizations to understand how managers come to their overall subjective performance evaluation in order to improve judgment and decision-making. The evaluation process and the elements that influence managers’ decision are still unclear (Bonner, 1999; Sprinkle, 2003; Sprinkle & Williamson, 2007). In chapters 2 and 3 we try to disentangle the managers’ evaluation process by means of a path model. We demonstrate for instance that managers follow both economic incentives and ethical, social and moral principles such as fairness, equity or reciprocity in their decision making. Furthermore, the extent to which managers consider ethical, social or moral principles depends on the specific combination of management control elements such as manager-employee compensation inequality and managerial discretion to freely decide on the bonus size (chapter 2) or the accuracy of the performance information on which managers base their evaluations and whether managers get the opportunity to write a justification on how they allocated employee bonuses (chapter 3). ReferencesBonner, S. E. (1999). Judgment and decision-making research in accounting. Accounting Horizons, 13(4), 385-398.Ferreira, A., & Otley, D. (2009). The design and use of performance management systems: An extended framework for analysis. Management Accounting Research, 20(4), 263-282.Hermans, T., Cools, M., & Van den Abbeele, A. (2013). Subjective performance measurement: a literature review. Rev Bus Econ Lit, 58(4), 308-342.Horngren, C. T., Datar, S. M., & Rajan, M. V. (2015). Cost Accounting: A Managerial Emphasis. Fifteenth Edition. Pearson education.Merchant, K. A., & Van der Stede, W. A. (2007). Management control systems: performance measurement, evaluation and incentives. Pearson Education.Otley, D. (1999). Performance management: a framework for management control systems research. Management Accounting Research, 10(4), 363-382.Salterio, S. E. (2015). Barriers to knowledge creation in management accounting research. Journal of Management Accounting Research, 27(1), 151-170.Sprinkle, G. B. (2003). Perspectives on experimental research in managerial accounting. Accounting, Organizations and Society, 28(2), 287-318.Sprinkle G.B. & Williamson M.G. (2007). Experimental research in managerial accounting. Handbook of Management Accounting Research, Chapman, C.S., Hopwood, A.G. & Shields, M.D (Eds.) (pp. 415-444). Oxford, UK: Elsevier.
Aantal pagina's: 144
Jaar van publicatie:2018