Alan Webb

The Balanced Scorecard: The Effects of Assurance and Process Accountability on Managerial Judgment

The balanced scorecard has been hailed as one of the major developments in management accounting in the past decade. Lipe and Salterio (2000) show that one of the key scorecard features, the inclusion of measures that are unique to the strategic objectives of a business unit, tend to be ignored by managers when making performance evaluation judgments. This study employs an adapted version of Kennedy’s (1993, 1995) debiasing framework to motivate two approaches to reducing this “common measures bias.” We examine whether increasing effort via invoking process accountability (i.e., requiring managers to justify to their superior their performance evaluations) and/or improving the perceived quality of the balanced scorecard measures (i.e., via assurance over the reliability and relevance of the performance measures) leads to managers’ increased usage of unique performance measures in their evaluations. Results suggest that either the requirement to justify an evaluation to a superior or the provision of an assurance report over all measures increases the use of unique measures in managerial performance evaluation judgments. Interestingly, the combination of the two approaches is not as powerful as the individual debiasers by themselves. Furthermore, we provide evidence that the common measures bias is not an easily correctable cognitive illusion that disappears when the potential for judgment inconsistency is pointed out to participants. Implications for theory and practice are discussed.

The Performance Effects of an Ability-Based Approach to Goal Assignment

Some organizations have begun to target their goal-setting method more closely to the ability levels of their employees. In this article, we report the results of a laboratory study of 138 undergraduate students, which shows that these “ability-based” goals are more effective at improving performance than a “one goal for all” approach, where everyone is assigned the same performance target. Results from repeated measure tests and other analysis of variance tests show that lower-ability individuals in the ability-based goal condition outperform those in the one goal for all condition. Lower- and moderate-ability participants in the one goal for all condition also experienced larger decreases in performance in later rounds.

Productivity-Target Difficulty, Performance-Based Pay and Outside-the-Box Thinking

In an environment where individual productivity can be increased through efforts directed at a conventional task approach and more efficient task approaches that can be identified through unconventional thinking, we examine the effects of productivity-target difficulty and pay contingent on meeting and beating this target. We argue that while challenging targets and performance-based pay may hinder the discovery of production efficiencies, they can motivate high productive effort (i.e., motivate individuals to work harder and more productively using either the conventional task approach or more efficient task approaches when discovered). Results of a laboratory experiment support our predictions. Individuals both assigned an easy productivity target and paid a fixed wage identify a greater number of production efficiencies than those with either challenging targets or performance-based pay. However, individuals with challenging targets and/or performance-based pay have higher productivity per production efficiency discovered suggesting these control tools better motivate productive effort. Collectively, our results suggest that the ultimate effectiveness of these control tools will likely hinge on the importance of promoting the discovery of production efficiencies relative to motivating productive effort. In doing so, our results provide a better understanding of conflicting prescriptions from the practitioner literature and business press.

The effects of tournament horizon and the percentage of winners on social comparisons and performance in multi-period competitions

We examine the effects of two important tournament design features, tournament horizon and percentage of winners, on social comparisons and performance in a multi-period setting. Prior research has individually examined these two features, but has not examined their joint effects. Replicating prior research, we predict that a higher percentage of winners will result in better performance than a lower percentage of winners by inducing more social comparisons. We also predict that grand tournaments will result in better performance than repeated tournaments through their effects on the extent to which competitors will engage in social comparisons. We expect that relative to repeated tournaments, grand tournaments will encourage more social comparisons because the performance feedback provided to competitors will be more indicative of the likelihood of future period outcomes (i.e., winning or losing) than in a repeated tournament. We also examine the extent to which the percentage of winners moderates the strength of the predicted relations among tournament horizon, social comparisons and performance. Finally, we predict that in repeated tournaments using a higher percentage of winners will be more effective at sustaining effort in later periods but that these effects will be weaker for grand tournaments. Results from a laboratory experiment with 400 undergraduate student participants support these predictions. Moreover, we find no evidence that the percentage of winners influences the impact of tournament horizon on social comparisons or overall performance. We identify implications for theory and practice.

Strategic Performance Information and Canadian Board Involvement in Strategy Related Issues: A Field Study

This study contributes to the growing body of research examining the governance processes undertaken by Boards of public companies. Specifically, we investigate the Board’s role in developing, executing and monitoring strategy and the nature and extent of strategic performance information provided to Boards. We also examine directors’ perceptions of indicators of effective Board involvement in strategy-related issues. Despite calls for greater Board involvement in strategy, few studies have examined this issue in a Canadian setting. To address this gap in the literature, we conducted 18 field interviews with directors (n = 14) of Canadian public companies and other governance experts (e.g., former directors, consultants). Our findings indicate Boards are commonly involved in monitoring strategy but there is more variation regarding the extent to which they also play an advisory role in developing and executing strategy. We also find that while Boards typically receive key performance indicators (financial and non-financial) there is limited provision of more strategy-based performance information such as balanced scorecards. Finally, our interviewees indicated that indicators of effective Board involvement in strategy should focus on process measures (e.g., nature and extent of strategy discussions) rather than objective outcomes such as financial performance. Our descriptive, field-based evidence provides a better understanding of Canadian Board involvement in strategy-related issues and suggests important areas for future empirical research.