The association between the interactive and diagnostic use of financial and non-financial performance measures with individual creativity: The mediating role of perceived fairness

Abstract

This study examines the associations between top management’s interactive and diagnostic use of financial and non-financial performance measures with individual manager’s (i.e. middle and lower level managers) creativity, and the mediating role of middle and lower level manager’s perceived fairness of their performance appraisal on such associations. Using data from a survey of 220 middle and lower level managers from manufacturing organisations in Australia, the structural equation model revealed direct positive associations between both the diagnostic use of financial performance measures and the interactive use of non-financial performance measures with individual creativity. Further, the positive effect of the interactive use of financial performance measures on individual creativity is positively and fully mediated by distributive, interpersonal and informational fairness, while the positive effect of the interactive use of non-financial measures is positively and partially mediated by interpersonal and informational fairness. In addition, procedural fairness positively and partially mediates the effect of the diagnostic use of financial performance measures on individual creativity, and interpersonal fairness positively and fully mediates the effect of the diagnostic use of non-financial performance measures on individual creativity. The findings contribute to the performance measurement and appraisal literature examining the interactive and diagnostic use of both financial and non-financial performance measures and extends the sparse literature on the role of perceived fairness in explaining the behavioural effect of performance measurement systems. The findings also provide implications for practice, revealing the importance of the interactive and diagnostic use of financial and non-financial performance measures, and manager’s perception of the fairness of performance appraisal processes as a mechanism through which individual manager’s creativity can be enhanced.