Amsterdam Business School
The effect of using performance measures for incentive purpose
on employee performance measures participation
Name: Linrui Xiang Student number: 11025514 Thesis supervisor: Qi Yang Date: 20 June 2016
Word count:
MSc Accountancy & Control, specialization Control
Statement of Originality
This document is written by student Linrui Xiang who declares to take full responsibility for the contents of this document.
I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it.
The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.
Abstract
I measure employee participation in designing performance measures and performance indicators in two aspects: how he could be heard and how he could influence performance indicators. I focus on lower level of managers that make incentives use of performance measures on their sub ordinate employees. When organization has a flexible culture to let the employees involved in designing performance indicators, the more managers attach importance to incentive use of performance measures, the more influence employees could have on choice of data and ongoing modification. When organization has a flexible culture to let the employees involved in designing performance indicators, the less managers attach importance to incentive use of performance measures, the more influence employees could have on implementation and maintenance of performance indicators. Using these high quality performance measures for incentive purpose, quality of performance measures and employee performance measures participation, will formulate a closed loop. These three variables will have combined influence on employee job performance.
Keywords:
Performance measures; performance indicators; performance measures participation; monetary compensation; non monetary rewards.
Contents
1 Introduction ... 5
2 Theory and hypothesis ... 9
2.1 The variables and their relation ... 9
2.2 Employee performance measures participation ... 10
2.3 Performance measures quality ... 12
2.4 Employee performance measures participation and job performance ... 14
2.5 Using performance measures for incentive purpose and job performance ... 14
2.6 Performance measures quality and norm ... 16
2.7 Mediator variables ... 17 2.8 Hypothesis ... 19 3 Methodology ... 22 3.1 Participants ... 22 3.2 Data collection ... 22 3.3 Survey instrument ... 23
3.4 Statistical analyses ... Error! Bookmark not defined. 4 Result ... 25
4.1 Hypothesis testing ... 25
4.2 Moderation of enabling control environment ... 25
5 Conclusion and discussion ... 26
5.1 Practical implications ... 26
5.2 Limitations ... 26
References ... 27
1 Introduction
In this paper, I examine the effect of using performance measures for incentive purpose on the co-development of performance measures. There is a great many of literature on the participation of employees in management accounting system design (Eldenburg, Soderstrom, Willis, & Wud, 2010). It is an innovative topic in management control research. However, most studies focus on participation in setting unit’s budgets, specially on determining unit’s budget by line managers. Derfuss (2009) finds the negative influence on budgeting efficiency if more participation of employees is involved. Although these studies provide valuable insights into co-development of performance measures, none of these studies connect using performance measures for incentive purpose with co-development of performance measures. This omission probably comes from the stereotyped thinking based on following three findings. Robert (2002) find that participation in designing performance measures could lead to better quality performance measures. Moer (2006) investigates that good incentive measures could help improve performance of employees in short term. Spector (2006) convince that using performance measures for incentive use could positively affect the performance of employees. Employees participations in performance measures design could improve performance measures quality, moreover, high quality performance measures could enhance the incentive use of performance measures by managers and improve performance of employees. It is neglected that more incentive use of high quality performance measures could also attract or encourage employees to participate in designing performance measures. Three independent variables influence each other and form a closed loop in one direction. Employees participation in designing performance measures, performance measures quality and using performance measures for incentive purpose all separately contribute to better performance of employees.
Empirical studies that investigate relationship between performance measurement system and organizational performance are abundant (Grafton, Lillis, & Widener, 2010; Lee & Yang, 2010), but studies that investigate relationship between quality of performance measures and using performance measures for incentives are rare. Groen (2015) finds no evidence to support the hypothesis on using performance measures for monetary compensation to increase employee performance. Other study investigates that monetary incentives could negatively affect employee job performance. Using performance measures for incentive purpose includes using performance measures for both monetary compensation and nonmonetary rewards. Monetary compensation includes potential salary increase and potential bonus. Nonmonetary reward
includes chance of promotion and authority within organization. I examine both monetary compensation and nonmonetary rewards to discuss potential implication in management accounting research, specialized on designing performance measures through participation of employees.
In this paper, designing performance measures through participation of employees refers to performance measures participation. It means that employees would participate in designing performance measures indicators rather than simply participating in budgeting and goal setting. Budgeting and goal setting are management accounting techniques within organizations. Their aims are to set goals and determine how difficult to achieve the goals. Performance measures participation has a broaden definition, that employees should participate and be responsible for transferring goals to good performance (Bourne, Mills, Wilcox, Neely, & Platts, 2000). This suggests that employees should have influence on total performance measures development process: design, implementations and maintenance. Employees influence in this process is the beginning of managerial control over developing sustainable performance measures (Gravesteijn, Evers, Wilderom, & Molenveld, 2011).
I measure employee participation in designing performance measures and performance indicators in two aspects: how he could be heard and how he could influence performance indicators. My research based on survey designed by Bianca A.C. Groen. The survey focus on lower level of managers that make incentives use of performance measures on their sub ordinate employees. The employees should be professional or at the lowest hierarchical level of organization and directly contact the frontline. Surveys are designed in three areas: how employees could be heard; how employees could influence performance indicators; how managers use performance measures for incentive purpose. Pairs of managers and employees should answer same questions separately. Same questions answered by managers and employees are two different variables. Answers from managers about how employees could be heard can be mediator variable to select organizations that has enabling environment for employees.
This paper contributes to literature in following ways. First, the result provides an explanation for why previous research could not connect monetary compensation and nonmonetary rewards to employee participation in designing performance measures, since these studies ignore their mutual improvement caused by “reasoned action model” (Ajzen, 2012). Previous study focus on
linking performance measures participations to employee job performance; linking performance measures quality to using performance measures for incentive use to enhance job performance. Second, it initiates more and more management accounting system designers to take low level performance measures users into consideration. Implementation of using performance measures for incentive use could help encourage employees better understand that designing performance measures is beneficial to themselves and organizations. Last but not the least, it has practical contribution to organisation on improving employee job performance by increasing their involvement in performance measures system.
The data I use in this study based on survey built by Bianca A.C. Groen. The survey contains 20 questions with topics such as performance measures participation, employee capability to take initiative, incentive use of performance measures and delegation rights. The survey has two specific versions to employees and managers and participants should be in pair meeting strict requirements. Each topic of question has more than one sub question. For each sub question, it has a 7 points scale for participants to select from totally disagree to totally agree. Questions are all subjective and each participant was given a dedicated survey link on the internet. Subjective questionnaires are designed according to previously research from Abernethy, M.A., & Bouwens, J. (2005). Answers of 7 points scale initiated from Francis et al. (2004). Basic information about participants such as sex, industry and working years are also included. They could address further discussions on performance measures participations within this survey.
In this paper, I control the managers answer to performance measures participation. Whether organization has a flexible culture and management control process to let the employees involved is critical to determine whether employees has real influence on performance measure system design rather than employees excessively speculate that they have influence on designing process. Based on this setting, I find that when organization has a flexible culture to let the employees involved in designing performance indicators, the more managers attach importance to incentive use of performance measures, the more influence employees could have on choice of data and ongoing modification. When organization has a flexible culture to let the employees involved in designing performance indicators, the less managers attach importance to incentive use of performance measures, the more influence employees could have on implementation and maintenance of performance indicators. This is consistent with previous study that autonomous motivation of employees will largely influence employees on how significant others, who are
admirable to employees, want employees to to perform better (Hagger & Chatzisarantis, 2009). When line managers attach importance to use performance measures for incentive use, employees are more willing to participate in the performance measures designing process if they could be heard in organization.
The main research question of this paper is to figure out the relationship between how manager use performance measures and how employee could participate in performance measures design. Whether the relationship will differ if the organization is flexible and practical to let employees involved in management control process. In the following sections, I will present the management accounting theory and cognitive psychology theory that related to my research question. The research method will be detailed explained in section three, with more practical verification. The statistics results will be presented in section four and conclusions and limitations will be discussed in section five.
2 Theory and hypothesis
In this section, the hypothesis will be formed based on previous management accounting research. First, the variables and their relations will be presented. Second, the variables and existing findings will be discussed. Third, the mediator variable, innovation of this paper, will be described. The hypothesis will be developed at last.
2.1 The variables and their relation
This study will focus on the relationship between employee performance measures participation and manager using performance measures for incentive purpose. Performance measures quality will be improved if employee participated in designing performance indicators. Quality of performance measures is measured in three properties: sensitivity, verifiability and precision. If quality of performance measures is high, low level manager will use these high quality performance measures for incentive purpose more than before. This will increase employee authority in organization. Question address: will using these high quality performance measures for incentive purpose increase more employee performance measures participation in turn?
Independent variable is using these high quality performance measures for incentive purpose and dependent variable is employee performance measures participation. This relationship is examined by dividing both independent variable and dependent variable into detailed variable. The independent variable is divided into managers attach importance to using performance measures for monetary compensation and for non monetary rewards. The first includes potential salary increase and potential bonus. The latter includes potential promotion and potential authority in organization. The dependent variable is divided into the way and the content, i.e. how employees could be heard; how employees could influence performance indicators. These variables are analysed from employee aspects. However, to control the situations that employees overestimate their influence or employees collude with manager, same questions answered by managers and employees are two different variables. Answers from managers about how employees could be heard can be mediator variable to select organisations that has enabling environment for employees.
The dependent variable is expected to have positive or negative influence on independent variable according to different answers from managers about how employees could be heard.
The two variables, using these high quality performance measures for incentive purpose and employee performance measures participation, are positive related to employee job performance. Therefore, any changes of these two variables contribute to changes of employee job performance, which has practice contribution to managerial control of organization. Moreover, if these two variable has significant relationship, the three variables, using these high quality performance measures for incentive purpose, quality of performance measures and employee performance measures participation, will formulate a closed loop. These three variables will have combined influence on employee job performance. Linkage effects will be strengthened if one of the three variables is changed. Independent variable, dependent variable and mediator variable are demonstrated in Figure 2.1.
2.2 Employee performance measures participation
Performance measures are designed to measure employee job performance. As for organization, performance measures are quantifiable indicators aimed to assess performance and position of its business. Managers may routinely check employee performance through pre determined goals according to performance measures. Types of performance measures different depends on who the performance measures will assess. This study will focus on performance measures that assess
non managerial employee rather than managerial employee. There are more and more literatures quantitatively link efficiency and effectiveness of performance measures to employees that was assessed. Performance measures could motivate and control managers and employees by affecting their decision making and authority level in organization (Sprinkle, 2003). On the contrast, Wouters and Wilderom (2008) argue that performance measures could help enhance managers and employees understanding of organization objectives and improve employees rather than control them strictly to act as performance measures required. Performance measures have its name and purpose at least. As the maturity of developing performance measures, source of original data, calculation formula, accountability and frequency of assessment are also required (Neely et al., 2002).
Employee participation in performance measures has a meaning of letting employees be involved in performance measures designing process. Moreover, it has a broaden meaning of being sustainable with performance measures system. Employee participation in performance measures refer to let employee participate in designing, implementation and maintenance (cf. Bourne et al., 2000). Employees are involved in performance measures setting process, but line managers could participate as well. Managers have significant influence in guiding employees to understand performance measures system process and effectiveness of performance measures development (Groen, Evers, et al., 2011).
Abernethy and Bouwens (2005) explored employee performance measures participation with “influence on the system design” scale. They address the extent of influence that employees thought they could have on designing performance measures that will be used to assess themselves. They focus on employee cognitive recognition of their role and responsibility in employee performance measures participation. Employees will have opinions on both questions: how employees could be heard; how employees could influence performance indicators. Their answers to these questions could be original data of employee performance measures participation. This procedure could also reflect their routine performance assessment and their co development with their line managers. Employees will be more willing to accept the assessment result if they are discussed about performance indicators with their managers (Wouters, 2009). Employees reporting about assessment of such performance indicators are also beneficial in developing sustainable performance measures.
2.3 Performance measures quality
Performance measures quality refer to how employees link their actions to performance measures. Whether the performance measures are relevant to reflect their job performance and accomplishment of goals; whether the result of assessment could be verified and gain the same result if performance the evaluating process again (Moer, 2006). There are lots of literature that studies performance measures quality on behalf of managers. They assert that high quality of performance measures should be a tool to help managers control and to supervise job performance of employees. They also address that good performance measures should guide employee find solutions to get better performance and get close to operational budgetary goals. However, employees need precise performance measures that based on convincing designing process with experience (Keeping & Levy, 2000). They prefer performance measures that could well describe their accountability and what they are expected to give out to organization while their daily work (Hall, 2008).
Performance measures quality explain the extent that employees make performance measures precise in measuring their performance in their relevant working criteria. When employees are convincing that performance measures could perfectly reflect what they have done, they will believe in the correctness of assessment that attach importance on evaluating their job performance. They will be motivated to improve their job performance and get close to determined goals. Targets that pre determined by performance measures could be reached easily because employees are willing to put more efforts to think about solutions to get the result (Fried & Ferris, 1987). If employees get good response from their managers about achieving goals set by performance measures, they will be happy when discussing next period goals set by performance measures. The more accurate of the response from their managers about achieving goals set by performance measures, the more employees will feel positive effects from the result of assessment (Kinicki, Prussia et al., 2004). Employees will trust the fairness of high quality performance measure system and feel motivated by each goals set by high quality performance measure system.
Formulating high quality performance measures should design in employees eyes rather than in managers strong control freak. However, high quality performance measures will have a specific feature, that is control. Employees should feel different level of possibility to achieve different job performance or job requirements. Performance measures could give a reference system to
employees on average and reasonable efforts that should put on to meet job requirement. Setting a high quality goal within high quality performance measures system could affect employee decision making on allocating efforts and skills (Hall, 2008). Employees will also be motivated to get new skills according to learning curve if they desire to make better decisions and get closer to goals next time. In this way, employees will align strategy of organisations with objective of their job requirements and perform better. This is the nature of motivations and could reduce agency problems if managerial employees are evaluated with high quality performance measures system.
High quality performance measure could give out favourable indications if employees meet all job requirements and take actions to achieve. This suggests that evaluation of job performance will not be affected by factors that out of employees and managers control. This increase the verifiability and fairness of performance measure system. Both managers and employees will be motivated by high quality performance measure. If managers act according to procedures that determine employee goals of performance, employees will be motivated to achieve the goal. If managers attach more importance to achieve the organization goals, employees may desire to measure their performance by themselves according to high quality performance measures. In this way, employees achieved goal may not in the same directions of organization goals. This could increase internal cost and decrease precision.
When managers discuss performance measures designing and implementation with employees, they will put their own attitude and experience into discussion. Employees will also think about setting goals on behalf of maximising his own benefits. Although employees have practical skills and may be more professional on skills than his line manger, they may reveal private information or hide key performance indicators to make him easily achieve the goals set by performance measure system (Christensen, 1982; Penno, 1984). Employees could only decide content of performance indicators that his manager do not have enough skills and knowledge about. However, Brown, Evans and Moser (2009) denied the agency theory effects in employee participation in performance measure designing process. Empirical study illustrates that involvement in designing performance measures that will use to assess employees themselves will show great honesty of managers and flexible culture of organization. In this way, employees are spontaneous to show same honesty to his managers in turn. Employees share practical knowledge and convince that he will be beneficial from this performance measures. High quality performance measure will bring positive outcomes to both managers and employees in this way.
2.4 Employee performance measures participation and job performance
Explore the relationship between employee performance measure participation and employee job performance is important because they throw light on involving employees in managerial control by developing performance measures and performance indicators together. Groen (2015) argues that only when employee performance measure participation could enhance the quality of performance measures, can their participation contribute to employee better performance. Managers could use co-developed performance measures for evaluating purpose to increase employee job performance significantly. However, as for using co-developed performance measures for incentive purpose, there remains further investigations on relevant and reliable database. Using co-developed performance measures for control purpose could also improve employee job performance, depending on the degree of control perceptions. Both employees and managers could get benefit from using the co-developed performance measures.
2.5 Using performance measures for incentive purpose and job performance
Managers attach importance to using performance measures for monetary compensation and for non monetary rewards. The first includes potential salary increase and potential bonus. The latter includes potential promotion and potential authority in organization. Both monetary compensation and non monetary rewards are important to show managers attitude and evaluation preference. Regardless of psychology satisfaction of managers and employees, agency theory suggests the best way to align staff interest with organization objectives is to use incentives to motivate managers and employees act on behalf of maximising organization benefits (Bonner & Sprinkle, 2002). This assertion is also supported by expectancy theory. Manager and employees will be motivated to perform better according to performance targets to get rewards or other style of compensation. Any type of incentives could give motivation to managers and employees. Positive influence from incentives could be desire to learn more skills, meet all job performance requirements timely and help improve the evaluation process and performance measures implementation.
Self-determination theory is a macro theory of human motivation that could help analyse the employees thinking while managers attach importance on using performance measures for incentive purpose. Employees self recognized degree of behaviour could be determined by inherent growth tendency. Their initial psychological needs and satisfactions requirement could
be waked up by monetary compensation and non monetary rewards. This kind of motivation is called extrinsic motives. Intrinsic motivation relates to activities that is interesting and could satisfy itself. As for employee performance measure participation, employees will feel fairness and trusts, which are intrinsic motives. Employees will also feel extrinsic motives, if their participation brings high quality performance measures and give reasonable financial or non financial rewards to themselves.
Only when employees have the same interests as the organization searches for, using performance measures for monetary and non monetary purpose will improve employee job performance. When employees feel less intrinsic motives, extrinsic motives such as monetary compensation and non monetary rewards could be a complement (Weibel, Rost, & Osterloh, 2010). Employees may feel pressure to do something from their managers or job performance requirements, this is called controlled motivation. Employees may feel incentives as a guider that restrict their imagination and flexibility to get jobs done (Holmas, Kjerstad et al., 2010). Employees could not feel self satisfaction through repeated routines and comply rules and method that job performance requires. In this way, extrinsic motives such as monetary compensation and non monetary rewards will remind them to act accordingly. Employees may have resist in heart and strengthen the crowding-out effect (Wong-On-Wing et al., 2010).
Robert D. Behn (2003) investigates that performance measures could have eight purpose depending on performance measures users. They are evaluating, control, budget, motivate, promote, celebrate, learn and improve. Setting performance goals will grab employee’s attention. In this way, performance measures will be assessment that provide useful feedback. Employees will focus on how to achieve the goals and check himself on whether put in enough efforts and whether meet job performance requirement. Managers that use performance measures for incentive purpose should give employees an achievable goal that described clearly. Employees will focus on figure out best solutions and grasp better sense of accomplishment. High quality of performance measures could also encourage employees thinking out of box and find a creative way to meet job requirement. This is a way of enabling and push employees to learn (Behn, 1999).
2.6 Performance measures quality and norm
Quality of performance measures will be improved if performance measures system follows strict phrase to build up: design, implementation and maintenance. In this way, high quality performance measures could also help facilitate employees to perform well according to pre determined job performance requirement. Managers will be motivated to discuss performance measures with employees to increase trust between managers and employees. Employees will gain self satisfactions and intrinsic motives when they feel that they could be heard in organization flexible culture (Hagger & Chatzisarantis, 2009).
Performance measures that improved by participation of employees and the adorable managers of employees could facilitate employees working passion. Employees will feel that better performance and reasonable performance assessments should come from better communications with his managers. During the participation and discussions, employees will get better understanding about what their managers focus on and what organization requires. They are expected to learn more about the implementation process and job required knowledge (Hall, 2008). Injunctive norms require employees and managers understand what should be done in order to get acceptable behavior. Descriptive norm means that managers should accept employees behaviour that not applied with performance measures system (Fishbein & Ajzen, 2010).
Quality of performance measures and norm could be explained by the theory of planned behaviour. The theory of planned behaviour address that people will behave according to their attitude and perceived norm. Employees will make decisions after feeling the social normative pressure and relevant other’s belief. They will form a habit on deciding whether one thing should be performed or not. In situation of participation of performance measures system, the relevant other’s belief equals what their managers expected from employees. This could be applied to determine performance measures using purpose. The other important item in the theory of planned behaviour is the subjective norm. The more important the managers in employee heart, the more judgement of behaviour towards performance measures design will be affected by his manager.
Performance measures will be used for evaluate and control purpose if the quality of performance measures are highly linked to subjective norm. Manager want to evaluate whether employees are doing the right thing according to budgetary goals. Management control depends on measurement and management accounting is also a kind of control. Managers will check whether employees have in fact take actions according to job performance requirement. In this way, managers will rely on performance measures to set fair and sustainable standards. Managers will find specified solutions and spend time and money in the specified ways to improve the performance of employees and their participation in performance measures.
2.7 Mediator variables
Information asymmetry arises when employees have more knowledge related to their work rather than their managers. When there is information asymmetry, the performance measure system gets meanings because managers need to make sure that employees are acting on behalf of organization interest. If there is no information asymmetry, managers will not give monetary compensation and non monetary rewards according to performance measures. Greon (2015) asserts that when there is more information asymmetry, using performance measures for incentive purpose will decrease employee job performance. Monetary compensation and non monetary rewards will motivate employees when there is less information asymmetry and employees believe that performance measures could correctly reflect what they have done in their routines. Managers use performance measures to check employees work and give out incentives. If employee feel his manager do not have enough professional knowledge related to employee front line work, judge of monetary compensation and non monetary rewards made by managers could not convince employees. This effect is more obvious in manufacture company rather than in service company because manufacture company is supposed to have less information asymmetry (Stajkovic & Luthans,1997). Employees will treat job complexity as a means to expect information asymmetry between employees and their managers. Line employees are supposed to have more professional and practical knowledge about the job rather than their managers supposed to. Employees will choose to not perform well to save cost of being professional rather than perform well to get the monetary compensation and non monetary rewards that are assumed to be unmatched.
Whether organization has a flexible culture and management control process to let the employees involved is critical to determine whether employees has real influence on performance measure system design rather than employees excessively speculate that they have influence on designing process. This could be treated as the information asymmetry between organization objective and every employees of the organization. Employees could only be heard in enabling control system (Jordan & Messner, 2012). Formal control system will be positively accepted by managers that prefer to use coercive standards to assess employee work. In this way, formal control system will act as a negative role to coerce managers purpose on using performance measures. How management control system is designed and how performance measures implement will decide whether the management control system is enabling or coercive. Enabling environment within organization management control system has fowling features. These features are all aiming to make employees have same attention from organization as their managers have. First, employees that are involved in management control should have right to repair the control system if there are some emergencies. Both employees and managers are equal users that are involved in the control system. They are permitted to modify existent performance indicators and performance measures to keep update to changing environment (Wouters & Wilderom, 2008). Second, enabling control system requires high quality of transparency within internal control system. Both managers and employees should be heard and be aware the communication hierarchy within organization. This suggests that targets set according to performance measures and assessment according to performance measures should echo each other. Both input and output of the management control system could be performed again and give out the same result as before. Third, flexible environment should be highlighted in organization culture. Managers are possible to consider whether their work could be done according to formal system. Employees are supposed to help managers get better understanding of employee self development requirement. More flexibility could make managers subjectively enable formal system to facilitate their managerial control.
Control is a tool that could help link managers evaluating role to employee action role. It does not matter whether managers accept enabling control system and apply flexibility to managerial work. Employees could give out their voice through well designed enabling control system. New practice and relevant control improvement will be integrated into management control system and managers will be affected by this relevant updates. Evaluation process could also be modified within such continuously self updates. Performance indicators could act as an enabling control tool if employees are accepted in participation of performance measures system design.
Flexible use and continuously modification use of performance indicators should be deeply developed in top managers heart. Top managers could order managers to focus on specified performance indicators and report routine work. When managers feel difficult to add flexibility and modification into managerial control system, they are likely to maximise the coercive role of managerial control system and relate their uselessness within organization to incompleteness of managerial control system (Jordan & Messner, 2012). Both manager and employees should feel flexibility and modification possibility within managerial control system.
Attitude of direct managers could represent the level and acceptance of enabling managerial control system within organization. Attitude of direct managers towards whether employees have influence on performance indicators could be mediator variable in research. Managers are familiar with performance measures setting process and the situations of employees in organization. Appearance of employee participation could be any one of the following situations. Whether employees could give out opinions without being asked. Whether employees were asked to give out personal opinion. Whether employees gave out opinions in group meetings or privately. Whether employees could design performance indicators by themselves. Different situations will make employees have different level of desire to participate in performance measures design, implementation and maintenance. To what extent the managers using performance measures for incentive purpose could affect employee participation in performance measures will also be different in these different situations.
2.8 Hypothesis
Managers will be motivated to discuss performance measures with employees to increase trust between managers and employees. Employees will gain self satisfactions and intrinsic motives when they feel that they could be heard in organization flexible culture (Hagger & Chatzisarantis, 2009). The more important the managers in employee heart, the more judgement of behaviour towards performance measures design will be affected by his manager. Employees will also be motivated to get new skills according to learning curve if they desire to make better decisions and get closer to goals next time. In this way, employees will align strategy of organisations with objective of their job requirements and perform better. This is the nature of motivations and could reduce agency problems if managerial employees are evaluated with high quality performance measures system. As for employee performance measure participation, employees
will feel fairness and trusts, which are intrinsic motives. Employees will also feel extrinsic motives, if their participation brings high quality performance measures and give reasonable financial or non financial rewards to themselves. This research will select participants that pair of manager and employee have same
Hypothesis 1a: Using performance measures for monetary compensation is positively related to employee influence in participation of performance measure design.
Hypothesis 1b: Using performance measures for non monetary rewards is positively related to employee influence in participation of performance measure design.
The main research question of this paper is to figure out the relationship between how manager use performance measures and how employee could participate in performance measures design. Whether the relationship will differ if the organization is flexible and practical to let employees involved in management control process.
Hypothesis 2a: When employees could give out opinions without being asked, using performance measures for incentive purpose is positively related to employee influence in participation of performance measure design.
Hypothesis 2b: When employees could be asked to give out opinions, using performance measures for incentive purpose is positively related to employee influence in participation of performance measure design.
Hypothesis 2c: When employees could give out opinions in group meeting, using performance measures for incentive purpose is positively related to employee influence in participation of performance measure design.
Hypothesis 2d: When employees could design performance indicators with others, using performance measures for incentive purpose is positively related to employee influence in participation of performance measure design.
Hypothesis 2e: When employees could design performance indicators by themselves, using performance measures for incentive purpose is positively related to employee influence in participation of performance measure design.
3 Methodology
To test the hypothesis, I join the survey project provided by Bianca A.C. Groen. Her topic is using performance measures to help instead of to control employees. First, pairs of employees and their managers who answered several questions related to performance indicators from their perspectives. Do survey on pairs will reduce the risk that identify wrong possibility of involvement from one point of view subjectively. Second, the pairs must meet criteria including “the employees have to carry out operational activities of their organisation”, which is the same operational level as I want to investigate. Third, survey research is suitable to investigate performance measures system and operational employee participation. Last but not the least, I couldn't obtain sufficient response on my own within one month. The larger database the better internal validity.
3.1 Participants
The final version of your thesis should contain the following items on the front page: This survey is designed by Bianca A.C. Groen. I joined her thesis program and help translate English version of original survey into Chinese version. This make Chinese participants are available to provide information to database. I got 99 pairs of employees and their managers to answer the survey properly. Employees in this survey refer to employees that carry out operational activities of their organizations. Managers in this survey refer to managers that direct assess employee performance by using performance measures. Employees should meet three conditions. First, employees have to carry out operational activities of their organization. Second, employees should be familiar with the operational activities and have worked in their current functions for at least one year. Third, the organization must have performance metrics about employee’s performance.
3.2 Data collection
Pairs of managers and employees should answer same questions separately. Same questions answered by managers and employees are two different variables. Answers from managers about how employees could be heard can be mediator variable to select organizations that has enabling environment for employees. Managers and employees that agreed to participate in survey research would receive an email contained specialized survey of manager version or employee version. Each survey has only one serial number and could only be answered by email receivers. Employees and managers in pair will have similar trial of number to make them easily signaled
together while dealing with data. The survey would take about 15 minutes to complete. System would automatically send a reminder two weeks later to participants that have not complete all required questions. If any one of the pair could not finish all questions in time, this pair would be deleted from the database.
3.3 Survey instrument
The dependent variable in this research is how much importance managers attach to incentive use of performance indicators. As for operating employees and their managers, incentive use could be in determining potential salary increase, potential bonus and chance of promotion. Each factor could represent how much importance managers think he could rely on performance indicators. Three factors have influence to each other, but all are typical forms of incentives. I select results from managers’ opinions rather than employees’ opinions on what they think their managers will attach importance to.
Independent variable is using these high quality performance measures for incentive purpose and dependent variable is employee performance measures participation. This relationship is examined by dividing both independent variable and dependent variable into detailed variable. The independent variable is divided into managers attach importance to using performance measures for monetary compensation and for non monetary rewards. The first includes potential salary increase and potential bonus. The latter includes potential promotion and potential authority in organization. The dependent variable is divided into the way and the content, i.e. how employees could be heard; how employees could influence performance indicators. These variables are analysed from employee aspects. However, to control the situations that employees overestimate their influence or employees collude with manager, same questions answered by managers and employees are two different variables. Answers from managers about how employees could be heard can be mediator variable to select organisations that has enabling environment for employees.
Survey asks about influence content in following three ways and asks both employees and managers select to what extent they agree with the statements. Whether employees have influence on how the performance indicators are designed, whether employees have influence on the choice of which data are used as input into the performance indicators and whether
employees have influence on ongoing modifications to the design of the performance indicators. Both employees and managers could select from totally disagree to totally agree in 7 grades.
Survey asks about influence form contains only one question: If employees have had influence on the performance indicators, how did that influence come about? Five possible situations are given: give opinions without being asked, asked to give personal opinion, design indicators by myself, design indicators with others and give personal opinion in a group meeting. First three selections are concluded as forms by oneself, and the last two selections are concluded as forms with others. These detailed statements about situations that employees give opinions help participants quickly wake up their memories and make good categories.
In order to allow for inferences with a high degree of internal validity, operating employee and his manager should answer same questions in their point of view respectively. Although they answer questions separately and independently, I compare both of their answers to one question to identify whether there is someone trying to hide facts or deceptions. This suggests that possibility of high involvement is important in studying on employees’ influence on performance indicators. As mentioned before, if managers have intention to let employees be involved in design performance indicators and employees are willing to improve performance indicators, the possibility of employees’ involvement is high.
As for the influence on performance indicators, take employee’s answer into final result, but exclude the answer when it is largely different from what his manager’s answer. Employees may overestimate their potential influence on performance indicators and performance measurements system may have some objective bias when making changes. As for the incentive use of performance indicators, it is subjective purpose from managers and employees could only investigate whether managers focus on incentives from existing bonus and salaries, which is not that timely and reliable. Take manager’s answer into final result, but exclude the answer only when it is largely different from what his employee’s answer.
4 Result
4.1 Hypothesis testing
Based on previous statistical analysis, I find that when organization has a flexible culture to let the employees involved in designing performance indicators, the more managers attach importance to incentive use of performance measures, the more influence employees could have on choice of data and ongoing modification. When organization has a flexible culture to let the employees involved in designing performance indicators, the less managers attach importance to incentive use of performance measures, the more influence employees could have on implementation and maintenance of performance indicators. This is consistent with previous study that autonomous motivation of employees will largely influence employees on how significant others, who are admirable to employees, want employees to to perform better (Hagger & Chatzisarantis, 2009). When line managers attach importance to use performance measures for incentive use, employees are more willing to participate in the performance measures designing process if they could be heard in organization.
4.2 Moderation of enabling control environment
Attitude of direct managers could represent the level and acceptance of enabling managerial control system within organization. Attitude of direct managers towards whether employees have influence on performance indicators could be mediator variable in research. Managers are familiar with performance measures setting process and the situations of employees in organization. Appearance of employee participation could be any one of the following situations. Whether employees could give out opinions without being asked. Whether employees were asked to give out personal opinion. Whether employees gave out opinions in group meetings or privately. Whether employees could design performance indicators by themselves. Different situations will make employees have different level of desire to participate in performance measures design, implementation and maintenance. To what extent the managers using performance measures for incentive purpose could affect employee participation in performance measures will also be different in these different situations.
5 Conclusion and discussion
5.1 Practical implications
This paper contributes to literature in following ways. First, the result provides an explanation for why previous research could not connect monetary compensation and nonmonetary rewards to employee participation in designing performance measures, since these studies ignore their mutual improvement caused by “reasoned action model” (Ajzen, 2012). Previous study focus on linking performance measures participations to employee job performance; linking performance measures quality to using performance measures for incentive use to enhance job performance. Second, it initiates more and more management accounting system designers to take low level performance measures users into consideration. Implementation of using performance measures for incentive use could help encourage employees better understand that designing performance measures is beneficial to themselves and organizations. Last but not the least, it has practical contribution to organization on improving employee job performance by increasing their involvement in performance measures system.
5.2 Limitations
Survey research has its own limitations. Managers may affect the independence of survey response by alerting employees to answer questions in some way before survey. There is a risk that pair samples from organisations with more informal is not enough or missing one of the four circumstances possibilities. These risk is even bigger when the database is small.
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Appendices
Appendix 1. Survey of employees’ influence content, employee version
Appendix 3. Survey of employees’ influence content, manager version
