Headquarters–Subsidiary Interdependencies and the Design of Performance Evaluation and Reward Systems in Multinational Enterprises

50 Pages Posted: 7 Aug 2009 Last revised: 4 Oct 2012

See all articles by Yan Du

Yan Du

EDHEC Business School

Marc Deloof

University of Antwerp; University of Antwerp - Antwerp Management School

Ann Jorissen

University of Antwerp - Department of Accounting & Finance

Abstract

This study investigates the impact of headquarters–subsidiary interdependencies on performance evaluation and reward systems in multinational enterprises. Headquarters–subsidiary interdependencies refer to the extent to which headquarters and subsidiaries depend on each other to accomplish their tasks. When headquarters–subsidiary interdependencies are present, it becomes more difficult to reward the performance of subsidiary managers because these interdependencies induce noise on subsidiary-level accounting performance measures, while at the same time high levels of goal alignment between headquarters and subsidiary managers are required. Based on survey data from 82 foreign subsidiaries operating in Belgium with headquarters in 14 different countries, our partial least squares path modeling results show that as headquarters–subsidiary interdependencies increase, headquarters use more participative performance evaluation and consider more the effects of uncontrollable factors on subsidiaries’ performance when rewarding subsidiary managers. More importantly, while prior research suggests that interdependencies induce noise on unit-level accounting performance measures, our results indicate that participative performance evaluation may mitigate the noise so that headquarters still rely on subsidiary formula-based compensation using accounting measures to reward subsidiary managers.

Keywords: headquarters–subsidiary interdependencies, performance evaluation and rewards, control systems, multinational enterprises

Suggested Citation

Du, Yan and Deloof, Marc and Jorissen, Ann, Headquarters–Subsidiary Interdependencies and the Design of Performance Evaluation and Reward Systems in Multinational Enterprises. European Accounting Review Forthcoming, Available at SSRN: https://ssrn.com/abstract=1444911 or http://dx.doi.org/10.2139/ssrn.1444911

Yan Du (Contact Author)

EDHEC Business School ( email )

58 rue du Port
Lille, 59046
France

Marc Deloof

University of Antwerp ( email )

Prinsstraat 13
Faculteit TEW
Antwerpen, 2000
Belgium
+32 3 265 41 69 (Phone)
+32 3 265 47 99 (Fax)

HOME PAGE: http://https://www.uantwerpen.be/en/staff/marc-deloof/

University of Antwerp - Antwerp Management School ( email )

Boogkeers 5
Antwerp, 2000
Belgium

Ann Jorissen

University of Antwerp - Department of Accounting & Finance ( email )

Prinsstraat 13
Antwerpen, B-2020
Belgium
00 32 3 220 40 92 (Phone)
00 32 3 220 40 64 (Fax)

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