Behavioral Responses to Measurement Diversity in Individual Incentive Plans: Role Conflict, Role Ambiguity, and Model-of-Man

44 Pages Posted: 31 Jul 2007

See all articles by Lorenzo Patelli

Lorenzo Patelli

University of Denver - School of Accountancy

Date Written: July 2007

Abstract

Prior empirical accounting research on the relationship between measurement diversity and performance provides conflicting results. In particular, most studies do not find a significant direct effect and few studies investigate the intervening effect of subordinates' behaviors. This paper examines the behavioral responses to individual incentive plans balancing multiple performance measures. Specifically, I examine the effect of the number of performance measures, concentration of performance weights, and reliance on non-financial performance measures on role conflict and role ambiguity for 243 individual short-term incentive plans provided by two different organizations. I use proprietary data to construct three variables for measurement diversity and survey data involving 415 individuals to capture their behavioral responses to incentive plans. I measure individual performance based on perceptual and objective variables. Consistent with role theory, the analyses reveal that measurement diversity leads to role conflict experienced by the subordinates with a negative effect on individual performance. Task complexity proxied by subordinate's job-grade is associated with the adoption of more performance measures and more financial indicators. Organizational identification proxied by subordinate's value commitment does not seem to moderate the relationship between incentives and individual behavior, whereas situational factors proxied by a dichotomous variable for the two different organizational settings significantly contribute to explain different behaviors. The empirical results have implications for the design of performance measurement and evaluation systems, especially for the selection of performance measures and their weighting in a system of multiple measures, and help to understand better the performance implications of incentive plans encompassing measurement diversity.

Keywords: measurement diversity, incentive plans, role theory

Suggested Citation

Patelli, Lorenzo, Behavioral Responses to Measurement Diversity in Individual Incentive Plans: Role Conflict, Role Ambiguity, and Model-of-Man (July 2007). Available at SSRN: https://ssrn.com/abstract=1004189 or http://dx.doi.org/10.2139/ssrn.1004189

Lorenzo Patelli (Contact Author)

University of Denver - School of Accountancy ( email )

2101 South University
Boulevard, Suite 355
Denver, CO 80208-8921
United States
303.871.2959 (Phone)
303.871.2016 (Fax)

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