EC 7

Question 1

How to address measure management?

Answer 1

Based on the Law of Measure Management
▪ Improving the performance measure
▪ Installing appropriate internal controls

Increasing strategic saliency
▪ Using multiple performance measures
▪ Involving employees in strategy development
▪ Narrative reporting

Question 2

Cardinaels, Dierynck & van Pelt

Answer 2

Improving performance measures through reducing the bias in performance measures
* Employees have the best information regarding the bias in the performance measure
* Because a lot of money is at stake for the employee, employees are often reluctant to report about the bias in their performance measures
* Rotating employees across business units has two beneficial effects:
* Compensation effect: rotation reduces the compensation owners provide for reported information (grounded in the reduced value of the unit-specific information)
* Reporting effect: rotation increases the information employees report about bias in their performance measures (grounded in other-regarding preference models)