Management Accounting Section Midyear Meeting

Measurement Diversity and Subjectivity of Performance Targets: A Field Study of Goal Perceptions, Feedback-Seeking Behavior, and Extrinsic Satisfaction

• In Event: Management Control (Mixed Methods)

Abstract

Diversity and subjectivity are two common measurement attributes of performance targets used in incentive contracts. Prior research studies them separately and provides heterogeneous results on their effects on organizational performance. Since firms set performance targets primarily to influence employee behavior, we examine how employees respond to incentive contracts that include diverse and subjective performance targets. We used proprietary data from two firms to measure the diversity and subjectivity of performance targets included in short-term incentive contracts. We then conducted a survey within the firms to capture employee goal perceptions and the self-regulatory process to cope with them. Our findings show that employees whose incentive contracts disperse weights on multiple targets (i.e., higher diversity) report higher conflict, and employees whose incentive contracts place more weight on subjective targets (i.e., higher subjectivity) report higher ambiguity. Although both perceptions are associated with lower extrinsic satisfaction, we find that employees who perceive higher conflict tend to engage more in feedback-seeking behavior, ameliorating the negative effect on their extrinsic satisfaction. Conversely, we find that employees who perceive higher ambiguity tend to engage less in feedback-seeking behavior. Our findings highlight the importance of employee responses to the measurement attributes of performance targets and contribute to explaining their motivational outcomes.

Author

• Lorenzo Patelli, University of Denver