Moral hazard and management control in just-in-time settings

Article Abstract:

Management control and motivational issues associated with Just-in-Time (JIT) production systems are examined. These systems are commonly adopted to help companies minimize their work-in-process inventories. A model is developed of the multi-input production setting that combines the features of 'standard' inventory models and 'standard' principal-agent models. It is used to investigate how the optimal inventory level decision is influenced by motivational issues with employees, as well as how JIT system changes impact management control and incentive systems. This model reflects two significant characteristics of a JIT system: the low inventory levels it involves and the link between inventory level and availability of information within the firm. The study predicts that JIT will boost worker productivity and that JIT plants workers will receive higher pay with a smaller piecework component. The results of the study are discussed.

Employee motivation, Inventory control, Just in time inventory systems, Just in time systems

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Customer satisfaction and future financial performance: discussion of 'Are Nonfinancial Measures Leading Indicators of Financial Performance? An Analysis of Customer Satisfaction.'

Article Abstract:

Ittner and Larcker (1998) should be commended for conducting the most comprehensive study ever on the link between customer satisfaction measures and future financial performance. Their decision to integrate three separate research studies, each using a different measure of customer satisfaction and a different level of data aggregation, enabled them to consider a broader range of issues. However, these differences between the three studies proved to be a hindrance in integrating the findings, with the authors failing to compare or contrast their results. It is therefore difficult to find a precise explanation for the different results of the three studies. Future research should therefore address the challenges inherent in the measurement of customer satisfaction, analysis of other factors that may influence the intensity of the relationships, and examination of the functional form of the relationships.

Customer satisfaction, Financial analysis, Financial statements

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Balancing performance measures

Article Abstract:

An agency theory model is developed for the analysis of optimal weights to apply to performance measures in a compensation contract. The optimal contract weights the performance measures in order to maximize the congruity between the agent's overall compensation and the firm's outcome.

United States, Wage Administration, Capital funds & cash flow, Analysis, Accounting and auditing, Compensation management, Employee performance

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