Employment horizon and the choice of performance measures: Empirical evidence from annual bonus plans of loss-making entities

Michal Mate̊jka, Kenneth A. Merchant, Wim A. Van Der Stede

Research output: Contribution to journalArticlepeer-review

29 Scopus citations

Abstract

We examine the extent to which employment horizon concerns affect the relative emphasis on financial versus nonfinancial performance measures in annual bonus plans. We argue that managers of loss-making firms are likely to voluntarily or forcibly depart in the near future and, consequently, have a shorter employment horizon. Loss-making firms then need to increase the emphasis on forward-looking nonfinancial performance measures to motivate long-term effort of their managers. Thus, we hypothesize that the emphasis on nonfinancial performance measures is greater in loss making than in profitable firms even after controlling for the informativeness of earnings. We find consistent support for our hypothesis using different (archival, survey, and field) data sources and various proxies for short employment horizon and the emphasis on nonfinancial performance measures.

Original languageEnglish (US)
Pages (from-to)890-905
Number of pages16
JournalManagement Science
Volume55
Issue number6
DOIs
StatePublished - Jun 2009
Externally publishedYes

Keywords

  • Bonus plans
  • Employment horizon problem
  • Losses
  • Performance measurement

ASJC Scopus subject areas

  • Strategy and Management
  • Management Science and Operations Research

Fingerprint Dive into the research topics of 'Employment horizon and the choice of performance measures: Empirical evidence from annual bonus plans of loss-making entities'. Together they form a unique fingerprint.

Cite this