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Three Studies Examining The Effects of Informal Management Control Systems and Incentive Compensation Schemes on Employees' Performance

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Date Issued:
2017
Abstract/Description:
This dissertation is comprised of three studies investigating the effects of informal management control systems (MCS) and different types of incentive compensation schemes on employees' performance. Prior research describes informal MCS as implicit sets of structures that management adopts to encourage employees to act in a way that aligns with overall organizational goals (Berry et al. 2009). Management usually puts informal MCS in place to inspire self-regulation behaviors among employees; hence, management may not reward or penalize employee behavior that is consistent or inconsistent with this informal MCS (Berry et al. 2009; Christ et al. 2008). Informal controls are implied by social pressures, such as employees' feedback, and management communication, such as a value statement or the organizational culture, where no explicit enforcement measures exist (Berry et al. 2009; Kachelmeier, Thornock and Williamson 2015). The first study examines whether the presence of a value statement (an informal MCS) can be used to motivate employees to perform important, but uncompensated subsequent tasks. The second study extends the first study by examining whether the interactive method of delivery of a value statement (informal MCS) can be used in conjunction with an incentive scheme to improve employees' performance. Lastly, the third study investigates the impact of an important aspect of organizational context, specifically organizational culture (informal MCS), and different types of incentive compensation schemes on strategy surrogation. The first study investigates whether the presence of a value statement (an informal MCS) can be used to motivate employees to perform important, but uncompensated tasks. Additionally, this study seeks to examine the type of incentive scheme that will result in the highest subsequent uncompensated task performance in the presence of an organizational value statement. Considering that incentive contracts cannot completely govern all the employees' responsibilities (Christ, Emett, Summers and Wood 2012), this study investigates how employees will perform their important but uncompensated tasks. The study shows that under fixed pay compensation, the presence of a value statement improves the performance of employees compared to the absence of a value statement. Conversely, under a piece rate incentive compensation, the presence of a value statement negatively influences the performance of employees in the important but uncompensated task. The study also shows that the intrinsic motivation of employees operating under piece rate compensation is more likely to be crowded out by their incentive pay relative to employees operating under a fixed wage. The second study examines whether the interactive method of delivery of a value statement (informal MCS) through electronic integration can be used in conjunction with an incentive scheme to improve employees' performance. Prior research shows that effectiveness of incentive systems is influenced by the presence or absence of a nonbinding value statement in the organization. A value statement is a declaration that communicates an organization's priorities and core beliefs to its customers and employees. Drawing upon the mere-exposure effect, the results of the study show that the employees who experience the interactive delivery of a value statement do not perform significantly better than employees who experience the passive delivery of a value statement. However, employees who receive a piece-rate incentive perform significantly better than employees who receive a fixed pay incentive. As predicted, the method of delivery of an organizational value statement moderates the effectiveness of a fixed pay incentive scheme.The third study draws upon the theory of inattentional blindness to investigate whether different types of organizational culture, control dominant or flexibility dominant, impacts strategy surrogation. Strategy surrogation occurs when managers focus on the measures in the SPMS on which they are compensated and completely or partially lose focus on the overall strategic objectives of the organization (Choi et al. 2012, 2013). Organizational culture is defined as a set of dominant values, beliefs, and assumptions that governs how people behave in organizations (Henri 2006). The results of the study show that there is no significant difference between employees operating under a control-dominant culture and employees operating under a flexibility-dominant culture. Similarly, the type of organizational culture does not moderate the relationship between incentive systems and strategy surrogation. However, employees operating under a pay-for-performance compensation scheme significantly surrogate more than employees operating under a fixed pay compensation scheme.Collectively these studies contribute to management accounting research by examining how different types of informal MCS such as organizational value statement and organizational culture interact with incentive compensation scheme. Specifically, these three studies highlight how and when we can use informal MCS to improve employees' performance as well as their decision making in the organization. Study one contributes to research and practice by highlighting situations where a pay-for-performance incentive scheme may result in unintended consequences. Study two contributes to the management control literature by demonstrating how utilizing technology can enhance the delivery of an organization's value statement and ultimately improve employees' performance. Study three contributes to the incentives and organizational culture literature as well as strategy surrogation research by examining institutional factors that may inhibit or exacerbate surrogation.
Title: Three Studies Examining The Effects of Informal Management Control Systems and Incentive Compensation Schemes on Employees' Performance.
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Name(s): Akinyele, Kazeem, Author
Arnold, Vicky, Committee Chair
Sutton, Steven, Committee Member
Tian, Yu, Committee Member
Libby, Theresa, Committee Member
University of Central Florida, Degree Grantor
Type of Resource: text
Date Issued: 2017
Publisher: University of Central Florida
Language(s): English
Abstract/Description: This dissertation is comprised of three studies investigating the effects of informal management control systems (MCS) and different types of incentive compensation schemes on employees' performance. Prior research describes informal MCS as implicit sets of structures that management adopts to encourage employees to act in a way that aligns with overall organizational goals (Berry et al. 2009). Management usually puts informal MCS in place to inspire self-regulation behaviors among employees; hence, management may not reward or penalize employee behavior that is consistent or inconsistent with this informal MCS (Berry et al. 2009; Christ et al. 2008). Informal controls are implied by social pressures, such as employees' feedback, and management communication, such as a value statement or the organizational culture, where no explicit enforcement measures exist (Berry et al. 2009; Kachelmeier, Thornock and Williamson 2015). The first study examines whether the presence of a value statement (an informal MCS) can be used to motivate employees to perform important, but uncompensated subsequent tasks. The second study extends the first study by examining whether the interactive method of delivery of a value statement (informal MCS) can be used in conjunction with an incentive scheme to improve employees' performance. Lastly, the third study investigates the impact of an important aspect of organizational context, specifically organizational culture (informal MCS), and different types of incentive compensation schemes on strategy surrogation. The first study investigates whether the presence of a value statement (an informal MCS) can be used to motivate employees to perform important, but uncompensated tasks. Additionally, this study seeks to examine the type of incentive scheme that will result in the highest subsequent uncompensated task performance in the presence of an organizational value statement. Considering that incentive contracts cannot completely govern all the employees' responsibilities (Christ, Emett, Summers and Wood 2012), this study investigates how employees will perform their important but uncompensated tasks. The study shows that under fixed pay compensation, the presence of a value statement improves the performance of employees compared to the absence of a value statement. Conversely, under a piece rate incentive compensation, the presence of a value statement negatively influences the performance of employees in the important but uncompensated task. The study also shows that the intrinsic motivation of employees operating under piece rate compensation is more likely to be crowded out by their incentive pay relative to employees operating under a fixed wage. The second study examines whether the interactive method of delivery of a value statement (informal MCS) through electronic integration can be used in conjunction with an incentive scheme to improve employees' performance. Prior research shows that effectiveness of incentive systems is influenced by the presence or absence of a nonbinding value statement in the organization. A value statement is a declaration that communicates an organization's priorities and core beliefs to its customers and employees. Drawing upon the mere-exposure effect, the results of the study show that the employees who experience the interactive delivery of a value statement do not perform significantly better than employees who experience the passive delivery of a value statement. However, employees who receive a piece-rate incentive perform significantly better than employees who receive a fixed pay incentive. As predicted, the method of delivery of an organizational value statement moderates the effectiveness of a fixed pay incentive scheme.The third study draws upon the theory of inattentional blindness to investigate whether different types of organizational culture, control dominant or flexibility dominant, impacts strategy surrogation. Strategy surrogation occurs when managers focus on the measures in the SPMS on which they are compensated and completely or partially lose focus on the overall strategic objectives of the organization (Choi et al. 2012, 2013). Organizational culture is defined as a set of dominant values, beliefs, and assumptions that governs how people behave in organizations (Henri 2006). The results of the study show that there is no significant difference between employees operating under a control-dominant culture and employees operating under a flexibility-dominant culture. Similarly, the type of organizational culture does not moderate the relationship between incentive systems and strategy surrogation. However, employees operating under a pay-for-performance compensation scheme significantly surrogate more than employees operating under a fixed pay compensation scheme.Collectively these studies contribute to management accounting research by examining how different types of informal MCS such as organizational value statement and organizational culture interact with incentive compensation scheme. Specifically, these three studies highlight how and when we can use informal MCS to improve employees' performance as well as their decision making in the organization. Study one contributes to research and practice by highlighting situations where a pay-for-performance incentive scheme may result in unintended consequences. Study two contributes to the management control literature by demonstrating how utilizing technology can enhance the delivery of an organization's value statement and ultimately improve employees' performance. Study three contributes to the incentives and organizational culture literature as well as strategy surrogation research by examining institutional factors that may inhibit or exacerbate surrogation.
Identifier: CFE0006850 (IID), ucf:51783 (fedora)
Note(s): 2017-12-01
Ph.D.
Business Administration, Dean's Office CBA
Doctoral
This record was generated from author submitted information.
Subject(s): Informal Management Control Systems -- Incentive Compensation Schemes -- Organizational Culture -- Organizational Value Statements -- Employees' Performance
Persistent Link to This Record: http://purl.flvc.org/ucf/fd/CFE0006850
Restrictions on Access: public 2017-12-15
Host Institution: UCF

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