Subjectivity and the Weighting of Performance Measures: Evidence from a Balanced Scorecard

42 Pages Posted: 22 May 2003

See all articles by Christopher D. Ittner

Christopher D. Ittner

University of Pennsylvania - Accounting Department

David F. Larcker

Stanford University - Graduate School of Business

Marshall W. Meyer

University of Pennsylvania - Management Department

Multiple version iconThere are 2 versions of this paper

Abstract

This study examines how different types of performance measures were weighted in a subjective balanced scorecard bonus plan adopted by a major financial services firm. Drawing upon economic and psychological studies on performance evaluation and compensation criteria, we develop hypotheses regarding the weights placed on different types of measures. We find that the subjectivity in the scorecard plan allowed superiors to reduce the "balance" in bonus awards by placing most of the weight on financial measures, to incorporate factors other than the scorecard measures in performance evaluations, to change evaluation criteria from quarter to quarter, to ignore measures that were predictive of future financial performance, and to weight measures that were not predictive of desired results. This evidence suggests that psychology-based explanations may be equally or more relevant than economics-based explanations in explaining the firm's measurement practices. The high level of subjectivity in the balanced scorecard plan led many branch managers to complain about favoritism in bonus awards and uncertainty in the criteria being used to determine rewards. The system ultimately was abandoned in favor of a formulaic bonus plan based solely on revenues.

Keywords: balanced scorecard, subjective performance measures, non-financial performance measurement

JEL Classification: M40, M46

Suggested Citation

Ittner, Christopher D. and Larcker, David F. and Meyer, Marshall W., Subjectivity and the Weighting of Performance Measures: Evidence from a Balanced Scorecard. Available at SSRN: https://ssrn.com/abstract=395241 or http://dx.doi.org/10.2139/ssrn.395241

Christopher D. Ittner (Contact Author)

University of Pennsylvania - Accounting Department ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States
215-898-7786 (Phone)
215-573-2054 (Fax)

David F. Larcker

Stanford University - Graduate School of Business ( email )

Graduate School of Business
518 Memorial Way
Stanford, CA 94305-5015
United States
650-725-6159 (Phone)

Marshall W. Meyer

University of Pennsylvania - Management Department ( email )

The Wharton School
Philadelphia, PA 19104-6370
United States

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