The choice of performance measures in annual bonus contracts
Article Abstract:
A study was conducted to investigate the factors affecting the relative weights assigned to financial and nonfinancial performance measures in the bonus contracts of CEOs. A cross-sectional latent variable regression analysis was performed on data gathered from 317 firms for the year 1993 or 1994. Findings revealed that the relative weight placed on nonfinancial measures is greater in organizations pursuing an innovation-directed 'prospector' strategy than in firms implementing a cost leader or 'defender' strategy. Moreover, firms that have embraced quality-oriented strategies put more emphasis on nonfinancial measures. Most were facing regulatory and competitive pressures to boost nonfinancial measures. The noise in financial performance measures also affected the use of nonfinancial measures. Lastly, the hypothesis that CEOs with greater control of the board tend to be compensated based on nonfinancial measures was not supported.
Publication Name: Accounting Review
Subject: Business, general
ISSN: 0001-4826
Year: 1997
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The performance effects of process management techniques
Article Abstract:
The relationship between specific process management techniques and organizational performance is analyzed. Exploratory evidence on the cross-sectional link between process management and two profit measures, namely, return on assets and return on sales, is investigated. Focus is on five elements that significantly affect process management success, namely, process focus, human resource management practices, information utilization, customer/supplier relations and organizational commitment. Sample data are extracted from the operations of automotive and computer sectors in the US, Canada, Germany and Japan. Results show that certain process management techniques boost profitability, while others have negligible effects on financial performance. Long-term partnerships with customers and suppliers are found to be linked with higher performance in both industries.
Publication Name: Management Science
Subject: Business, general
ISSN: 0025-1909
Year: 1997
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The informational advantages of discretionary bonus schemes
Article Abstract:
Discretionary bonus pools can be used to produce strict Pareto improvements under highly general conditions and in different model specifications. These compensation structures are often used because they permit a principal to apply non-contractible information in a consecutively logical fashion to motivate agents. Aside from facilitating strict Pareto improvements, these bonus structures also generate distortions to managers' compensation which run counter to conventional assumptions about informativeness and controllability. Nevertheless, such distortions are in consonance with observed group payment plans where independent distributions are based on relative performance evaluation or total firm profits. In this case, other divisions' uninformative performance results in distortion of compensation for each division manager.
Publication Name: Accounting Review
Subject: Business, general
ISSN: 0001-4826
Year: 1995
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