The Effect of Performance Measure Comparability and Discriminability on Measure Discontinuance

Abstract

ABSTRACT This study investigates the effect of performance measure characteristics―comparability and discriminability―on performance measure discontinuance. Relative performance evaluation using comparable information offers a means of filtering out common shocks and capturing the subordinates’ own performance relative to that of peers. In addition, a measure’s ability to discriminate good from poor performance is important in the incentive contract. We show that since subordinates have an incentive to put effort into the comparable and discriminable performance measures, the superior is more likely to retain performance measures with greater comparability and discriminability. Using a large sample of performance evaluation data from 15 state-owned enterprises in South Korea over the period 1985–2021, we find that comparable and discriminable performance measures are less likely to be discontinued. Our study contributes to the performance evaluation literature by identifying two measure characteristics that influence the evolution of performance measures.