Use Of Non-financial Measures Research Articles

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

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.

How does relationship quality translate into better organisational performance: an empirical check

This paper examines the impact of relationship quality on organisational performance by testing the relationship quality-relationship outcome conceptual model. Organisational performance is measured in terms of relationship outcomes. A survey was used to collect data from pharmaceutical companies in India. Relationship quality is comprised of trust, commitment, communication quality, and, relationship satisfaction. Relationship outcomes conceived as a dependent variable for this study was also measured using suitable non-financial and relationship centred measures. The research instruments were refined and validated. The data were analysed using structural equation modelling. The results indicate that only communication quality and relationship satisfaction emerge as significant predictors of relationship outcomes in the current research context. This study provides valuable insights into the importance of communication quality and relationship satisfaction in sustaining the relationships and deriving required benefits from it. It also advocates the use of non-financial measures as indicators of organisational performance.

Pentingnya Ukuran Kinerja Nonfinansial dalam Balanced Scorecard, Komitmen Organisasi, dan Kinerja Manajerial

This study investigates the role of the degree of importance of using nonfinancial performance measures (in Balanced Scorecard) by superiors for performance evaluation in influencing employee performance through organizational commitment. This study adopted a quantitative research design and conducted a cross-sectional survey by questionnaire to collect responses from 118 local managers in Samarinda, Indonesia. Based on PLS analysis, the results of this study indicate that the use of nonfinancial measures in Balanced Scorecard for performance evaluation is significantly affect employee organizational commitment and directly affect managerial performance through organizational commitment. The results also prove that organizational commitment has a mediation role in the relationship between nonfinancial measures and performance. This study provides valuable insight that the degree of importance of the use of nonfinancial measures by superiors to evaluate performance can improve employee commitment and performance. Practically, the results provide an overview for superiors to be more comprehensive in developing a performance measurement system because the system has a crucial role in influencing employee behavior.

How does Relationship Quality (RQ) translate into better organizational performance: An empiricial check

This paper examines the impact of relationship quality on organisational performance by testing the relationship quality-relationship outcome conceptual model. Organisational performance is measured in terms of relationship outcomes. A survey was used to collect data from pharmaceutical companies in India. Relationship quality is comprised of trust, commitment, communication quality, and, relationship satisfaction. Relationship outcomes conceived as a dependent variable for this study was also measured using suitable non-financial and relationship centred measures. The research instruments were refined and validated. The data were analysed using structural equation modelling. The results indicate that only communication quality and relationship satisfaction emerge as significant predictors of relationship outcomes in the current research context. This study provides valuable insights into the importance of communication quality and relationship satisfaction in sustaining the relationships and deriving required benefits from it. It also advocates the use of non-financial measures as indicators of organisational performance.

The Influences of Independent and Female Directors on the Use Non-Financial Measures in the Evaluation of CEO Performance in Malaysia

CEO compensation and performance evaluation has become a highly contention issue in the business world. Several factors appear to be behind the image problem but the uppermost is the dramatic increase in CEO reward in recent decade. Wage efficiency theory argues higher compensation would increase the performance but on the evaluation of CEO performance many issues are faced in selecting performance measurement indicators. The purpose of this paper is to extend discussions in evaluating the CEO performance in research domain. Based on agency theory, the model of this research is developed. The cross-sectional data was collected by questionnaires. By applying regression model, this study revealed that independent directors and female directors on the use of non-financial measures in CEO performance evaluation, are found to be positively associated with the use of non-financial measures which reinforce the findings of prior studies in regarding their influence on the use of non-financial measures in CEO and corporate performance evaluation. The ratio of female directors on the BOD is significantly and positively associated with the use of non-financial measures in the evaluation of CEO performance. This study contributes economically, socially and politically.

Disclosure and Audit Implications of Nonfinancial Measures: A Teaching Case

SUMMARY This case introduces students to nonfinancial measures (NFMs) and encourages thoughtful consideration and discourse surrounding their reporting and use by managers and auditors. NFMs are commonly reported by companies to provide increased transparency of operations and to more effectively describe performance. External parties such as analysts and auditors make use of NFMs in performing valuation assessments, fraud risk assessments, and substantive analytical procedures. In completing this case, students will be exposed to actual NFMs disclosed in SEC filings and employ Microsoft Excel knowledge to perform foundational analytical procedures. Students will also analyze how these NFMs link to the financial statements, as well as reflect upon the implications of NFMs for both internal and external users.

The role of the use of non-financial measures in the relation between CEO’s psychological characteristics and organizational performance: Focused on KFCC

The role of the use of non-financial measures in the relation between CEO’s psychological characteristics and organizational performance: Focused on KFCC

Performance measurement systems in auditing firms

Purpose – The purpose of this paper is to investigate challenges facing auditing firms in designing and measuring their performance and discusses why and how the balance scorecard (BSC) could support the auditing firms overcome such challenges. The paper contributes to the existing literature by identifying the peculiarity of the auditing firms in designing and implementing performance measurement systems including the need for sound and advanced information systems, subjectivity embedded in measuring customer satisfaction, growth and success of the firms and restrictions imposed by regulations and auditing standards for the provision of non-audit services which may increase the firms’ revenues and profits to help maintain high-quality outputs. Also, the paper provided evidence for the use of non-financial measures in service industry in particular for customers and finance. The unique dilemma in the auditing firms to provide services to satisfy customers yet maintaining distance and independence from them represent an important research question requiring investigation and study. Design/methodology/approach – A review of the literature for performance evaluation in general and in particular BSCs in service industries was made to identify challenges facing auditing firms when measuring their performance. Data were collected using case study approach; two auditing firms, one of the Big 4 and a medium size auditing firm with international affiliation operating in the Egyptian market were selected. Interviews, document analysis and participant observations were used in the analysis of each firm performance measurement system. Findings – The paper suggests that major challenges face auditing firms in measuring their performance mainly the size of the firm and its affiliation with international auditing firm, the qualification and experience of partners and audit managers needed for the design and implementation of a BSC or similar performance measures, the resources required for the introduction of such performance measure and the peculiarity of the auditor and client relationship with the need to maintain independence and confidentiality while providing high-quality services. Although both auditing firms being studied have formal performance measurement systems, they differ in their degree of comprehensiveness. In particular, the performance measurement system of the larger firm is more elaborate than that of the smaller one and both place more emphasis on qualitative measures such as learning and growth and internal business processes than financial measures. Research limitations/implications – Overall, the results have implications for understanding the performance measurement process of auditing firms in general and in particular in an emerging economy such as Egypt. The identification of the challenges facing auditing firms in measuring their performance and how the implementation of BSC can help partners and employees to overcome those challenges will add to the literature for performance evaluation in service companies. Future research should be carried to compare and assess differences between the behavioural aspects of performance measures in auditing firms and possible application of BSC in such firms and those used in services industry. Also, the practicality of implementing a BSC measures for different auditing firms should be investigated further in future research. Originality/value – The research among the first to investigate the challenges facing auditing firms in designing and operating a performance measurement system and to discuss, using case studies, how a BSC could support the auditing firms to overcome such challenges. Further, the research provides insights into performance measures in auditing firms in developing economies like Egypt which are sparse since most studies have been conducted in developed economies. Also, the paper enriches the literature of performance measurement systems in service rather than the manufacturing sector especially for medium and small size firms.

Non-financial performance measures and the BSC of multinational companies with multi-cultural environment

Purpose – The purpose of this paper is to investigate the use of financial and non-financial performance measurement practices, including the use of the balanced scorecard (BSC) and the impact of the cultural values on the use of performance measurement systems (PMSs), in multinational companies (MNCs) operating in the Middle East with a special attention to the Saudi Arabian subsidiaries. Design/methodology/approach – Data were collected using a survey mailed to 180 randomly selected Saudi manufacturing subsidiaries in different industrial cities to collect data on their PMSs including the use of the BSC. Findings – Financial measures are more widely used by most of the companies included in the sample due to the fact they are common, well known, and the most familiar performance measures in the business practice and they are more standardized measures which can be easily understood, implemented, and quantified. Moreover, the use of the non-financial measures was at a very low rate compared with the use of financial measures. The reasons were the difficulty in finding objective measures of the effect of social factors and the avoidance of any disclosure of social problems that are existed in the society. Research limitations/implications – Several variables were not included in this study such as corporate culture, use of information technology, the use of mass number of expatriates in the KSA with completely different cultural values, and several other environmental factors, which might have a significant impact on the choice of multiple performance measures. Practical implications – From a practical standpoint, this study demonstrates that increasing levels of external environmental factors and exposure to American best practices could act as forces to adapt more updated and sophisticated PMSs in the Middle East. Moreover, it will contribute to the knowledge of PMSs in the emerging countries, particularly in Middle East countries. Social implications – Social variables have significant impact on the productivity of employees and they should be incorporated into the performance indictors in objective and practical models. Originality/value – This study illustrates how MNCs in the Middle East are adapting and applying the PMS and the effect of culture on the use of non-financial measures.

The Role of Non-Financial Measures in the Relationship between Servant Leadership and Organizational Effectiveness

This study aims seek to the role of non-financial measures in the relationship betweenservantleadership and organizational effectiveness. The result of analyzing is as follows. First, servant leadership did not directly affect organizational effectiveness. Second, servant leadership had a positive effect on the use of non-financial measures. Third, the use of nonfinancial measures had a positive effect on organizational effectiveness. Such results show that servant leadership has a positive effect on organizational effectiveness through the use of non-financial measures.Keywords: Non-Financial Measures, Organizational Citizenship Behavior, Organizational Commitment, Organizational Effectiveness, Servant Leadership

Associação das medidas de desempenho para pagamento de bônus aos executivos com dependência de capital humano

The goal of this study is to investigate the association of performance measures used to pay bonuses to executives with the dependence of human capital and the moderating effect of the compensation structure in companies listed on BM&FBovespa. The results indicate that reliance on human capital is negatively related to the use of human resources measures for the payment of bonuses to executives. It is concluded that the use of non-financial measures and human resources for the payment of bonuses to executives in companies dependent on human capital is greater when they adopt egalitarian compensation structures, than with hierarchical compensation structures.

Uso de medidas não financeiras de desempenho, estratégia e orientação temporal de gestores das 'melhores empresas para você trabalhar'

O propósito principal deste estudo é investigar o relacionamento entre o uso de medidas não financeiras de desempenho e orientação temporal dos gestores ao examinar empiricamente predições normativas da contabilidade no que se refere ao relacionamento positivo entre o uso de medidas não financeiras de desempenho e orientação temporal dos gestores. Além disso, este estudo explora o efeito moderador da missão estratégica da empresa sobre o relacionamento entre o uso de medidas não financeiras de desempenho e orientação temporal dos gestores ao examinar se uma missão estratégica de longo prazo intensifica o relacionamento positivo entre medidas não financeiras de desempenho e orientação temporal dos gestores. Portanto, são desenvolvidas hipóteses referentes à associação entre o uso de medidas não financeiras e orientação temporal dos gestores, assim como, se estratégia modera esse relacionamento, tendo por base a literatura contábil relevante sobre o tema. Realiza-se um levantamento em que os questionários são enviados para o endereço eletrônico de uma amostra de gestores de nível intermediário atuando em empresas no Brasil. Utiliza-se a técnica estatística de mínimos quadrados parciais (PLS) e análise de subgrupos para testar as hipóteses de pesquisa. Os resultados indicam a presença de um relacionamento significativo entre uso de medidas não financeiras e orientação temporal dos gestores, mas, contrário às predições normativas e às expectativas deste estudo, uma orientação temporal mais de curto prazo está associada com uma maior importância relativa atribuída a medidas não financeiras de desempenho. Além disso, novamente contrário às expectativas deste estudo, os resultados indicam que a missão estratégica de uma empresa modera esse relacionamento da seguinte maneira: se perseguindo uma estratégia de construir, uso de medidas não financeiras de desempenho está negativamente relacionada com orientação temporal dos gestores. A principal implicação deste estudo é que podem existir certas situações em que o uso de medidas não financeiras de desempenho não contribui para a tomada de decisões de longo prazo. Pesquisa futura poderia explorar essas situações de modo que seja possível obter um entendimento mais amplo dos efeitos de diferentes medidas de desempenho sobre orientação temporal dos gestores.

제조기업의 성과측정시스템에 관한 사례 연구

Abstract In this study, questionnaires and field interviews in practice the use of PMS, in assessing companies' usage and employee's perceived importance of performance measures for the characteristics of PMS was investigated. The results of this study can be summarized as follows: First, the companies in the respective business environment and strategies to improve the performance measures reflect, but was using a lot of financial measures. Second, discrepancy-between employee's perceived importance and companies' usage of non-financial measures was showed. Thus, there is a need to develop a variety of performance measures and increase the use of non-financial measures. Third, the company has to consider design and use of PMS to induce the awareness of employees and behavioral changes in order to improve organizational performance. Key Words : Performance measurement systems, Performance measures, use of PMS * 이 논문은 동아대학교 교내연구비 지원에 의하여 연구되었음.Received 19 November 2013, Revised 19 December 2013Accepted 20 January 2014Corresponding Author: Jeong-Hyeong Lee(Dong-A University) Email: jeonglee@dau.ac.krⒸ The Society of Digital Policy & Management. All rights reserved. This is an open-access article distributed under the terms of the Creative Commons Attribution Non-Commercial License (http://creativecommons.org/licenses/by-nc/3.0), which permits unrestricted non-commercial use, distribution, and reproduction in any medium, provided the original work is properly cited.ISSN: 1738-1916

Adopting of Balanced Scorecard by Manufacturing Firms in Bahrain: An Empirical Study

Performance measurements play an important role in understanding the determinants of successful performance of firms. The balanced scorecard is one of the integrated performance measurement systems that has wide acceptance in several countries. The prior studies investigated different aspects of balanced scorecard in the developed countries, but this study contributes to the performance measurement literature by collecting evidence about the extent of adoption the balanced scorecard in one of the developing countries such as Bahrain. Also, this study statistically examined the effect of a firm's size on adopting balance scorecard. The main instrument in surveying the Bahrain firms is a questionnaire. The findings rejected the null hypotheses. It is found statistically that there are differences between Bahraini manufacturing firms in adopting the balanced scorecard. Also the study found that there is effect of the firm's size with the growing use of non-financial measures by the BSC adopters.

A survey of executive compensation contracts in China’s listed companies

We analyze 228 executive compensation contracts voluntarily disclosed by Chinese listed firms and find that central-government-controlled companies disclose more information in executive compensation contracts than local-government-controlled and non-government-controlled companies. Cash-based payments are the main form of executive compensation, whereas equity-based payments are seldom used by Chinese listed companies. On average, there are no significant differences in the value of basic salaries and performance-based compensation in executive compensation contracts. But, compared with their counterparts in non-government-controlled companies, executives in government-controlled companies are given more incentive compensation. Accounting earnings are typically used in executive compensation contracts, with few firms using stock returns to evaluate their executives. However, the use of non-financial measures has increased significantly since 2007.

The influence of lead indicator strength on the use of nonfinancial measures in performance management: Evidence from CEO compensation schemes

Nonfinancial measures (NFMs) are a common feature of strategic performance management frameworks. We examine the role of one widely used NFM: customer satisfaction, in one aspect of strategic performance management: CEO compensation schemes. Drawing on agency theory precepts, we hypothesize that the extent to which firms link CEO compensation to customer satisfaction is influenced by satisfaction's ability to act as a leading indicator of future profitability (lead indicator strength). We further hypothesize that the extent to which customer satisfaction's lead indicator strength influences the weighting of satisfaction in CEO compensation schemes has a positive influence on future shareholder value. Our empirical results offer strong support for both hypotheses and extend research on the use and efficacy of NFMs in CEO compensation schemes. Copyright © 2013 John Wiley & Sons, Ltd.

The Use of Financial Incentives in SMEs

Despite the importance of SMEs in the economy, both in terms of employment and value created, management accounting research in SMEs has been sparse (Mitchell and Reid 2000). Other authors have studied the adoption of MCS and the use of HR practices in early stage/startup companies (Barron et al. 1996, 1999; Hellman and Puri 2002; Davila 2005; Davila and Foster 2007), but no evidence has been collected on the use of financial incentives on managers’ compensation schemes. Hence, I contribute to the literature by analyzing i) the determinants of the use of financial incentives, defined as a percentage of the total compensation; ii) the performance metrics used on those financial incentives; iii) the determinants of the use of nonfinancial measures; and iv) the importance of incentives to its recipients. Using data from 1,039 questionnaires answered by CEOs and CFOs of SMEs from a European country, I find no evidence that the use of incentives is significantly related with firm size and presence of venture capital. I find evidence that the use of incentives is significantly and positively related with family-own, use of MCSs, individual performance and firm performance. Firm age has a negative and statistically significant effect on the use of incentives. The majority of the respondents have an incentive scheme that includes an evaluation by their supervisors. I find that the measures more widely used in the incentive scheme are Net Income and Sales, and the least used are EVA and ROE. I find that individual performance is not associated with the use of nonfinancial measures but firm performance is. Finally, I find that there is a positive and significant relationship between the level of incentives and the importance attributed to those incentives.

The Diffusion of Performance Evaluation Measures: An Empirical Study in Jordanian Banks

This research aims to provide a view of the present role of performance evaluation measures, to identify theextent of usage of performance evaluation measures, and finally to examine the contingent variables in order tofind out their effect upon the extent of usage in the Jordanian banks. In order to achieve these objectives, theresearch used a questionnaire method; 80 (out of 140) valid questionnaires were returned, giving a (57.14%)response rate. Several statistical tests were used to analyze the data, namely, descriptive and bivariate correlationanalysis (Kendall`s tau test). The results revealed that there is a lack of use of non-financial measures that areconsidered as contemporary management accounting practices. However, the financial measures wereconsidered as the highest practice being utilised. In addition, the results confirmed the hypothesized relationshipsbetween contingency variables and the extent of usage, namely; age of the company; net sale growth, number ofemployees; sophistication of operations; professional certificates; and academic certificates. Finally, it can beconcluded that the traditional Performance evaluation measures are still widely used.

The Attitudinal and Behavioral Effects of Nonfinancial Measures

A recent study by Lau and Moser (2008) found that the use of nonfinancial measures for managerial performance evaluation is positively associated with managerial performance via procedural fairness and organizational commitment. It is not clear, however, whether the findings are generalizable to other contexts. Using very different samples, the objectives of this study are to reexamine and to extend Lau and Moser’s model. Our paper is only able to partially support their model, suggesting that management control systems should be designed to fit the contexts.

Nonfinancial and financial performance measures: How do they affect employee role clarity and performance?

Two recent studies have found that comprehensive performance measurement systems comprising both financial and nonfinancial measures (e.g., balanced scorecard) are positively related to managerial performance through role clarity. It is, however, unclear if these results are from the use of financial measures or from the use of nonfinancial measures. It is also unclear if these effects are achievable by using nonfinancial measures alone. This study provides insights into prior studies' findings by distinguishing those effects arising from nonfinancial measures from those arising from financial measures. Based on a sample of 121 managers, the results indicate that nonfinancial measures, by themselves, significantly influence managerial performance through role clarity. More importantly, they also indicate that the effect of nonfinancial measures on role clarity is substantially stronger than that through financial measures.