Effects of Performance Measure Preference and Choice on Intrinsic Incentives

Abstract

This study contributes to the accounting literature by providing theory and evidence on how the performance measurement process influences subordinate’s intrinsic incentives. The study investigates competing theories concerned with the research question of how subordinate’s performance measure preference and superior’s performance measure choice influence subordinate’s intrinsic bonus and penalty incentives associated with favorable performance outcomes. This study uses a field experiment and a behavioral economic method to control extrinsic incentives and to monetize the intrinsic incentive. Performance measure preference and choice are found to interactively influence intrinsic bonus and penalty incentives in a way that is consistent with self-determination theory and the enabling and coercive roles of accounting but not with attribution theory. Subsequent analysis reveals performance measure preference and choice influence intrinsic incentives by influencing subject’s sense of personal agency and skill but not by providing information or reducing uncertainty.