Timing is Everything: Congruence, Controllability, and Performance Measure Weighting

41 Pages Posted: 21 Aug 2012 Last revised: 22 Sep 2023

See all articles by Hayden T. Gunnell

Hayden T. Gunnell

Emory University

Gary Hecht

University of Illinois at Urbana-Champaign

William B. Tayler

Brigham Young University

Kristy L. Towry

Emory University

Date Written: June 18, 2018

Abstract

We investigate whether the weights managers place on performance measures for performance-based compensation depend on whether weights are determined at the beginning or end of the performance period. We propose that managers frame the weighting decision differently depending on timing. Specifically, prior to employee effort, managers frame the decision as intended to align employee effort to firm objectives, whereas after employees have exerted effort, managers frame the weighting decision as intended to evaluate employee effort. Thus, we expect, and find, that managers weight measures that are more congruent with firm objectives more heavily when weightings are determined ex ante (before employee effort) and weight measures that are more controllable more heavily when weightings are determined ex post. Further, we find that this effect of timing is robust to the availability and valence of outcome information, which is often readily available in ex post measure weighting scenarios. Ultimately, our study speaks to the unexplored – but fundamental – effect of timing on managers’ performance measure weighting choices. While managerial accounting literature largely views timing as an assumption or an artifact of context, timing is often an important choice that has profound implications for the structure of performance evaluation and compensation systems.

Keywords: performance evaluation, compensation, subjectivity, discretion, performance measure weighting, timing, congruence, controllability

Suggested Citation

Gunnell, Hayden and Hecht, Gary and Tayler, William B. and Towry, Kristy L., Timing is Everything: Congruence, Controllability, and Performance Measure Weighting (June 18, 2018). Available at SSRN: https://ssrn.com/abstract=2133092 or http://dx.doi.org/10.2139/ssrn.2133092

Hayden Gunnell

Emory University ( email )

Goizueta Business School
1300 Clifton Road
Atlanta, GA 30322
United States

Gary Hecht

University of Illinois at Urbana-Champaign ( email )

601 E John St
Champaign, IL Champaign 61820
United States

William B. Tayler (Contact Author)

Brigham Young University ( email )

Brigham Young University
519 TNRB
Provo, UT 84602
United States
(801) 422-5972 (Phone)
(801) 422-0621 (Fax)

Kristy L. Towry

Emory University ( email )

Goizueta Business School
1300 Clifton Road
Atlanta, GA 30322
United States
404-727-4895 (Phone)

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