Week 3 papers Flashcards
For what can strategically linked firm-specific PM be used?
Campbell et al. (2015): Testing Strategy with Multiple Performance Measures: Evidence from a Balanced Scorecard at Store24
- Evaluate strategy on a timely basis
- Distinguish between problems, such as strategy formulation, implementation and fit, that cause strategies to fail
What is the rationale behind these 2 hypothesis?
Less subjectivity is required if the formula bonus is more complete.
More subjectivity is required when objective PMs are more short-term.
Gibbs et al. (2004): Determinants and effect of subjectivity in incentives
Relates to congruence. If OPM is more incongruent, you use more subjectivity. If the OPM formula is complete, you don’t require subjectivity. It is not complete, you need subjectivity to fully cover all aspect of employees tasks.
If the OPM are very short-term focused, you need to balance this with more subjectivity.
What 2 aspects cause the incongruence?
Gibbs et al. (2004): Determinants and effect of subjectivity in incentives
It doesn’t cover all of the employee’s tasks
Focus on short-term
What are the 2 problems OPM can have?
Gibbs et al. (2004): Determinants and effect of subjectivity in incentives
- Incongruence
- Susceptible for risk.
What is the relationship between OPM and noise?
Gibbs et al. (2004): Determinants and effect of subjectivity in incentives
The more OPM are susceptible to noise, the more you use subjectivity to compensate for this.
What effect does trust have on the outcome of subjecitivty?
Gibbs et al. (2004): Determinants and effect of subjectivity in incentives
Trust increases the benefits and reduces the costs of subjectivity. WIth more trust, subjectivity can be used to a more extended degree and this results in better outcomes.
For what 2 reasons are subjective bonuses used?
Gibbs et al. (2004): Determinants and effect of subjectivity in incentives
- To complement perceived weaknesses of OPM
- To provide employees insurance against risk in their pay
What is an important reason to use NFPM in bonus contract?
Ittner et al. (1997): The Choice of Performance Measures in Annual Bonus Contracts
If certain non-financial value drivers are important but are not well captured in FPM
Why is NFPM used more in firms with a differentiation strategy?
Ittner et al. (1997): The Choice of Performance Measures in Annual Bonus Contracts
In Differentiation other aspects are also important. APM’s have shortcomings with this strategy and you require NFPM to supplement
For cost leadership APM quite reasonable.
Why is NFPM used more in firms with a focus on quality?
Ittner et al. (1997): The Choice of Performance Measures in Annual Bonus Contracts
APM’s are useful in this strategy, but you also require NFPM to measure if you are actually successful on quality and to motivate managers to focus on quality.
For efficiency firms APM are a quite reasonable measure of managers performance and to motivate managers.
If you are doing good on NFPM, what else are you doing good at?
Banker et al. (2000): An Empirical Investigation of an Incentive Plan that Includes Nonfinancial Performance Measures
If you score good on NFPM you are also doing on future value creation
What happens with NFPM scores if you reward employees on them?
Banker et al. (2000): An Empirical Investigation of an Incentive Plan that Includes Nonfinancial Performance Measures
If you reward employees on NFPM, the performance on NFPM will also increase.
What can NFPM show that FPM cant?
Banker et al. (2000): An Empirical Investigation of an Incentive Plan that Includes Nonfinancial Performance Measures
NFPM are a reflection of current management actions that do now show up in FPM until later.
