The Role of Financial Incentives in Balanced Scorecard-Based Performance Evaluations: Correcting Mood Congruency Biases

Journal of Accounting Research, Forthcoming

46 Pages Posted: 21 Jul 2011

See all articles by Shujun Ding

Shujun Ding

University of Ottawa - Telfer School of Management

Philip Beaulieu

University of Calgary

Date Written: July 21, 2011

Abstract

Moods are low intensity affective states that individuals bring to a decision, and may be especially important when the balanced scorecard (BSC) is used for performance evaluation purposes. We propose that financial incentives can motivate decision makers to correct mood congruency biases, in which judgments and decisions are consistent with moods. In Experiment 1 participants rated the performance of one division manager based on two accounting measures and another manager based on a 16 measure BSC; there were mood congruency biases at both levels of information load. Financial incentives to make benchmark-consistent judgments eliminated bias in the former condition but not in the BSC condition. In Experiment 2 incentives were offered and performance evaluations were based on an eight measure BSC; mood congruency bias was eliminated. Results suggest that management control systems, specifically financial incentives, should be included in future affect correction research.

Keywords: Affect, Financial Incentives, Mood Correction, Information Load

JEL Classification: M41

Suggested Citation

Ding, Shujun and Beaulieu, Philip, The Role of Financial Incentives in Balanced Scorecard-Based Performance Evaluations: Correcting Mood Congruency Biases (July 21, 2011). Journal of Accounting Research, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1892099

Shujun Ding (Contact Author)

University of Ottawa - Telfer School of Management ( email )

136 Jean-Jacques Lussier Street
Ottawa, Ontario K1N 6N5
Canada

Philip Beaulieu

University of Calgary ( email )

2500 University Drive, NW
Calgary, Alberta T2N 1N4
Canada
403-220-7304 (Phone)
403-282-0095 (Fax)

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