Marcel van Rinsum

How Control System Design Influences Performance Misreporting

This paper investigates reporting honesty when managers have monetary incentives to overstate their performance. We argue that managers who report about their performance will take into account how their report affects their peers (i.e., other managers at the same hierarchical level). This effect depends on the design of the organization’s control system, in particular on the reward structure and the information policy regarding individual performance reports. The reward structure determines if peers’ monetary payoff is increased or decreased when managers claim a higher level of performance. The information policy determines if managers will be able to link individual peers to their reports and affects the non-monetary costs of breaking social norms. We present the results of a laboratory experiment. As predicted, we find that participants are more likely to overstate their performance if this increases the monetary payoff of others than if their reported performance decreases others’ monetary gains. In addition, overstatements are lower under an open information policy, where each individual’s reported performance is made public, compared to a closed information policy where participants only learn the average performance of the other participants. Our findings have several important implications for management accounting research and practice.

How Control System Design Influences Performance Misreporting: CONTROL SYSTEM DESIGN AND PERFORMANCE MISREPORTING

This paper investigates reporting honesty when managers have monetary incentives to overstate their performance. We argue that managers who report about their performance will take into account how their report affects their peers (i.e., other managers at the same hierarchical level). This effect depends on the design of the organizations control system, in particular, on the reward structure and the information policy regarding individual performance reports. The reward structure determines if peers’ monetary payoff is increased or decreased when managers claim a higher level of performance. The information policy determines if managers will be able to link individual peers to their reports and affects the nonmonetary costs of breaking social norms. We present the results of a laboratory experiment. As predicted, we find that participants are more likely to overstate their performance if this increases the monetary payoff of others than if their reported performance decreases others’ monetary gains. In addition, overstatements are lower under an open information policy, where each individuals reported performance is made public, compared to a closed information policy, where participants only learn the average performance of the other participants. Our findings have several important implications for management accounting research and practice.

The Impact of Subjectivity in Performance Evaluation Practices on Public Sector Managers' Motivation

We conduct an explorative study to investigate the effect of subjectivity in performance evaluation practices on managerial motivation in public sector organisations. Increased subjectivity can enhance motivation if supervisors are able to provide better informational feedback. However, subjectivity is likely to reduce motivation if it reduces perceived mission clarity or negatively affects relations between supervisors and subordinates. Our analysis is based on a survey among 94 public sector managers in the Netherlands. We predict and find that subjectivity in performance evaluation practices reduces perceived mission clarity, which in turn decreases motivation. We also find that subjectivity negatively affects subordinate managers’ trust in their supervisor, which also reduces motivation. Jointly, these results indicate that the negative effects of subjectivity in performance evaluation practices outweigh its potential positive consequences, suggesting that New Public Managements focus on more objective performance measures can indeed be beneficial. By itself, however, this does not automatically imply that more objective systems in general are optimal in all public sector organisations as such systems may have dysfunctional side effects such as distortion of performance measures, gaming or manipulation. In addition, we find that the effects of subjectivity are moderated by organisational characteristics.

Discussion of “Managers' Discretionary Adjustments: The Influence of Uncontrollable Events and Compensation Interdependence”

In this discussion of Bol, Hecht and Smith (this issue; BHS), I examine their theory and experimental setting with the purposes of investigating how their study generalizes and identifying further research possibilities. First, I discuss the uncontrollable events the study addresses, which are influenceable and require innovative effort to prevent adverse effects. What follows next is an analysis of experimental design choices and their implications. In particular, results could be specific to the manipulation of event likelihood, as well as to the properties of the objective bonus system and form of subjectivity. This illustrates how evaluation system design properties can create diverse reference points and affect perceived fairness and discretionary adjustments. Together, these points indicate wherein the contribution of BHS lies, and provide an outline for future research opportunities by suggesting alternative research choices.