Management Accounting Section Midyear Meeting

Aligning Target Setting in Organizations

• In Event: Performance Targets

Abstract

This study examines whether aligning employee target setting throughout the organization – with respect to target difficulty, metric type, and target horizon – is associated with the formulation and achievement of more accurate and precise corporate targets. Using survey data on publicly traded U.S. companies’ internal target-setting practices that can be linked with standard archival databases, we find that firms with greater alignment in their employee target setting processes issue more accurate and more precise annual EPS targets and achieve these targets to a greater extent. These relations are more pronounced for multi-segment firms, for which target setting alignment is arguably more difficult and more impactful. These findings contribute to the target setting literature, which mostly focuses on target setting for individual employees but does not study interdependencies among employee targets throughout the organization or between employee targets and corporate targets.

Authors

• Gavin Cassar, INSEAD

• Thomas Keusch, INSEAD

• Mariya Todorova, INSEAD