scholarly journals Non-financial performance measures and pay-performance sensitivity

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
MyoJung Cho ◽  
Salma Ibrahim
Keyword(s):  
Financial Performance ◽  
Performance Measures ◽  
Financial Risk ◽  
Shareholder Wealth ◽  
Performance Measure ◽  
Content Type ◽  
Financial Measures ◽  
Performance Sensitivity ◽  
Ceo Pay ◽  
Financial Performance Measures

Purpose This study aims to examine whether chief executive officer (CEO) pay-performance sensitivity to shareholder wealth is related to the use of non-financial performance measures in incentive contracts. Design/methodology/approach Using hand-collected performance measure data in a sample of S&P 500 firms across the period 1994–2010, this study investigates the sensitivity of CEO bonus and cash pay to shareholder wealth of firms that use non-financial performance (NFPM) measures of varying types and contractual weights in their bonus contracts along with financial measures (NFPM firms) in comparison to that of firms using financial measures only (FPM firms). Findings This study finds evidence that the pay-performance sensitivity is stronger in NFPM firms than in FPM firms. These results are driven by the use of CEO individual goals and operational efficiency. Furthermore, when using environmental, social and governance factors, the pay-performance sensitivity is stronger in terms of accounting performance only. This study also finds that using NFPM enhances pay-performance sensitivity more as their contractual weights increase and as financial risk increases. Practical implications These findings are important to stakeholders, and especially regulators in understanding incentive effects of alternative performance measures. This study also sheds light on what types of non-financial measures are better in helping firms align CEOs’ incentives to shareholders’ interests. Originality/value This study contributes to prior research on benefits of non-financial information within the context of executive compensation. This study presents original results about the effects of contractual weights of non-financial measures and financial risk on CEO pay-performance sensitivity. This study also presents new insights regarding how different types of non-financial measures affect CEO pay-performance sensitivity.

Non-financial e-procurement performance measures

2020 ◽  
Vol 70 (1) ◽  
pp. 41-64 ◽  
Author(s):  
Nripendra Kumar ◽  
Kunal K. Ganguly
Keyword(s):  
Financial Performance ◽  
Performance Measures ◽  
Production Cost ◽  
Performance Measure ◽  
Research Model ◽  
Content Type ◽  
Firm Financial Performance ◽  
Efficiency And Effectiveness ◽  
Financial Performance Measures ◽  
The Impact

PurposeThe purpose of this research paper is to identify the non-financial e-procurement performance measures and find out whether these non-financial performance measures are leading indicator of impact on firm financial performance by adoption of e-procurement in terms of reduction in production cost.Design/methodology/approachThe research model has been tested with the data collected from target procurement professionals in India. Structural equation modelling has been used for testing conceptual model hypotheses including mediation. The phantom model approach for testing multiple mediators has deployed.FindingsThe present empirical study found that non-financial performance measure of e-procurement, namely, transparency, coordination, efficiency and effectiveness are leading indicators of the impact of e-procurement adoption on production cost. This paper suggests that managers should try to design the e-procurement platform or opt for third party platform which reduces transaction cost to a minimum for enhanced coordination, work on transparency policy with maximum disclosure of information for enhanced transparency and ask for a fast and responsive system for enhanced efficiency and effectiveness.Originality/valueThis study, first time, attempted to identify non-financial performance measures of e-procurement and tried to understand how these intermediate non-financial performance measures impact the firm financial performance. The interdependence of non-financial performance measures has also been explored, and the research model has been developed to empirically examine the interdependence of these financial measures and its impact on production cost.

Divisional performance measurement in the retail financial service sector

2017 ◽  
Vol 66 (2) ◽  
pp. 180-195
Author(s):  
Ben Kwame Agyei-Mensah
Keyword(s):  
Regression Analysis ◽  
Performance Measurement ◽  
Financial Performance ◽  
Performance Measures ◽  
Economic Performance ◽  
Management Accounting ◽  
Performance Measure ◽  
Financial Service ◽  
Content Type ◽  
Financial Performance Measures

Purpose Focussing on responsibility theory of management accounting, the purpose of this paper is to test how performance measurements are applied in divisionalised financial service companies. Management accounting theory suggests that two different measures of branch performance should be computed: one to evaluate the economic performance of each branch and the other to evaluate the performance of branch managers (managerial performance). It also advocates that the evaluation of a manager’s performance should consist of only those factors under his or her control. That is, divisionalised performance measurement should be based on the application of the controllability principle, the study also identified the contingent factors that impinged on the selection of performance measures and the allocation of common costs (ACCs) to branches. Design/methodology/approach Using a survey questionnaire and analysis of financial statements of the 129 respondent companies the application of financial performance measures: non-financial performance measures and ACCs were tested. For the purpose of this study, dummy variables were assigned to represent whether or not an item is used, if an item is used 1 is assigned to that item and 0 if an item is not used. The values assigned were then summed up to represent the total score for each company. Descriptive statistics and regression analysis was performed to test the six hypotheses of the study. Findings The study found that a substantial majority of respondents used different performance measures to evaluate the performance of their branch managers and the economic performance of branches. Both financial and non-financial performance measures were equally used in measuring the performance of branches and branch managers. The study also found that branch managers do not have full autonomy and control over the allocation of common resources costs which form part of their evaluation, even though accounting theory suggest that. The regression analysis results showed that firm size, liquidity and leverage were the factors that influence the decision to employ financial performance measures, non-financial performance measures and ACC by the respondent companies. Research limitations/implications Despite the popularity of the balanced scorecard it is surprising to note that none of the respondents have ever used this as a performance measure. The implication is that knowledge of this performance measure is very low among the respondents. The excessive use of uncontrollable factors in the measurement process can reduce the morale of the staff involve hence steps should be taken to reduce their use. Originality/value This is one of the few studies conducted on the application of performance measures in the financial services and also in a developing country setting. The findings would help organisations in both developing and developed economies to improve upon the application of performance measurement techniques in their branches/divisions.

The effectiveness of flexible manufacturing strategies

2009 ◽  
Vol 58 (2) ◽  
pp. 119-135 ◽  
Author(s):  
Therese A. Joiner ◽  
X. Sarah Yang Spencer ◽  
Suzanne Salmon
Keyword(s):  
Financial Performance ◽  
Performance Measures ◽  
Flexible Manufacturing ◽  
Positive Association ◽  
Manufacturing Firms ◽  
Manufacturing Strategy ◽  
Organisational Performance ◽  
Content Type ◽  
Financial Performance Measures

PurposeAgainst a background of a customization imperative embraced by manufacturing firms in industrialised nations and the concomitant call for more balanced performance measurement systems (PMS), this study seeks to examine the mediating role of both non‐financial and financial performance measures in the relationship between a firm's strategic orientation of flexible manufacturing and organisational performance.Design/methodology/approachA path‐analytical model is adopted using questionnaire data from 84 Australian manufacturing firms.FindingsThe results indicate that, first, firms emphasising a flexible manufacturing strategy utilise non‐financial as well as financial performance measures; second, these performance measures are associated with higher organisational performance; and third, there is a positive association between a firm's strategic emphasis on flexible manufacturing and organisation performance via non‐financial and financial performance measures.Practical implicationsWhile there is agreement on the beneficial role of non‐financial performance measures in supporting strategic priorities associated with customization strategies, equivocal research results have emerged on the role of financial performance measures in this context. The study underscores the importance of both non‐financial and financial performance measures in this context.Originality/valueThe paper reinstates the value of financial performance measures for firms pursuing customization type strategies and adds to one's knowledge of PMSs by exploring the intervening role of such systems in linking flexible manufacturing strategy to organisation performance.

Value creation of EVA and traditional accounting measures: Indian evidence

2016 ◽  
Vol 65 (4) ◽  
pp. 436-459 ◽  
Author(s):  
Vijay Kumar Gupta ◽  
Ekta Sikarwar
Keyword(s):  
Stock Returns ◽  
Information Content ◽  
Performance Measures ◽  
Value Creation ◽  
Economic Value ◽  
Value Added ◽  
Performance Measure ◽  
Content Type ◽  
Financial Measures ◽  
Incremental Information

Purpose – The purpose of this paper is to examine the superiority of economic value added (EVA) over the traditional accounting performance measures, i.e. earnings per share, return on assets and return on equity. For this purpose, the relative and incremental information content of EVA and accounting measures are tested by examining the relationship of these measures with stock returns. Design/methodology/approach – The analysis is performed for a sample of 50 Indian companies selected from the index Nifty 50 for the period of 2008-2011. The penal regression models are applied to examine the relative and incremental information content of EVA and traditional performance measures. Findings – The study finds that EVA has more relevant and incremental information content than accounting measures for analyzing shareholder value creation. These results confirm that EVA is better performance measure than traditional accounting measures. Research limitations/implications – The study could be further extended for the sample of other firms covering the specific industries and sectors. The calculation of EVA could be modified with respect to the adjustment in profit after tax and the calculation of cost of capital. Practical implications – The study has implications for the managers who are responsible to generate the wealth of shareholders by formulating the corporate financial policies. The findings also help investors who are closely concerned with the financial health of the firm while taking their investment decisions. Originality/value – The novelty of this study is that it relates total return of firm’s stock with the financial measures unlike the previous literature.

scholarly journals Questioning the context of corporate performance measures in benchmarking CEO compensation

2015 ◽  
Vol 13 (1) ◽  
pp. 945-957 ◽  
Author(s):  
Merwe Oberholzer ◽  
Jaco Barnard
Keyword(s):  
Content Analysis ◽  
Performance Measurement ◽  
Financial Performance ◽  
Special Reference ◽  
Agency Theory ◽  
Performance Measures ◽  
Performance Measurements ◽  
Future Studies ◽  
Ceo Pay ◽  
Financial Performance Measures

The purpose of the study was to reflect on existing practices in studying the CEO pay performance issue, with special reference to the context wherein the financial performance measurements were employed. In total, an in-depth content analysis of 40 published articles was done. Some flaws were identified in prior research, namely some studies only use either market-based or accounting-based measurements, only a single performance measurement, measurements without the context of the subjacent risks, monetary values without substance as performance measurements and without the context of a theory. The contribution of this study is that a framework is developed to guide future studies with regard to the context wherein financial performance measures should be employed and that some theories, additional to the agency theory, were identified that should be tested more frequently in pay performance-related studies.

Performance Measure Properties and Delegation

2006 ◽  
Vol 81 (4) ◽  
pp. 897-924 ◽  
Author(s):  
Frank Moers
Keyword(s):  
Decision Making ◽  
Financial Performance ◽  
Performance Measures ◽  
Organizational Design ◽  
Performance Measure ◽  
Decision Making Process ◽  
Nonfinancial Performance ◽  
Incentive Problem ◽  
Financial Performance Measures

In this paper, I extend the organizational design literature by examining how the delegation choice is affected by the ability to resolve the incentive problem caused by this delegation. Based on the seminal papers by Grossman and Hart (1986) and Holmstrom and Milgrom (1994), I argue that the ability to resolve the incentive problem depends on the contractibility of financial performance measures versus nonfinancial performance measures, where the contractibility depends on the performance measure properties sensitivity, precision, and verifiability. The empirical results show that, if financial performance measures are “good” (“poor”) incentive measures, i.e., high (low) on sensitivity, precision, and verifiability, then using these measures for incentive purposes increases (decreases) delegation. Overall, the results are consistent with the argument that firms design their decision-making process around the quality of contractible performance measures.

Consequences of intensive use of non-financial performance measures in Danish family farm holdings

2017 ◽  
Vol 14 (2) ◽  
pp. 137-156 ◽  
Author(s):  
Morten Jakobsen
Keyword(s):  
Financial Performance ◽  
Performance Measures ◽  
Family Business ◽  
Family Businesses ◽  
Production Volume ◽  
Business Managers ◽  
Content Type ◽  
Intensive Use ◽  
Economic Reality ◽  
Financial Performance Measures

Purpose The purpose of the paper is to analyse how the intensive use of non-financial performance measures and the lack of an economic reality among Danish farmers have contributed to a low economic performance despite high productivity. The research ambition of the paper is to contribute to a better understanding of the managerial decision-making made by family business managers, in this case farmers, and how these decisions may impact financial performance. Design/methodology/approach The study is based on a case study including farmers, agricultural consultants and bankers. The analysis uses pragmatic constructivism to analyse the economic reality of the farmers included and the business topos among Danish farmers. Findings The main finding of the paper is that the dominating non-financial performance management techniques and a historically based strong emotional emphasis on size and production volume as the main success criteria for being a good farmer have led to a neglect of economic rationality. In addition, this practice has made the farmers blind to alternative possibilities for taking advantage of the resources available. The result has been an un-economic utopian reality. Originality/value The paper shows how the use of non-financial performance measures can lead to prolonging of a certain reality perception that may not be economically sustainable. Small family businesses such as family farms are likely to be more exposed to such risk because such businesses are run by a set of values that include more objectives that are more dominating than the profit objective. The paper concludes that family business managers must be open towards inputs from the society around the business, because family businesses may have a tendency to create their own reality that at some point may come in conflict with society of which the family business has to co-exist within.

Financial Performance Measures, Efficiency and Indian Banking

2012 ◽  
Vol 1 (2) ◽  
pp. 43-56
Author(s):  
Padmasai Arora
Keyword(s):  
Financial Performance ◽  
Performance Measures ◽  
Bank Performance ◽  
Data Envelopment ◽  
Bank Efficiency ◽  
Policy Makers ◽  
Important Indicator ◽  
Financial Measures ◽  
Financial Performance Measures ◽  
Using Data

Globalization forces are linking banking operations to worldwide markets making them vulnerable to global stress. This fundamental change compels banks to be more robust in terms of sound financial performance. Bankers worldwide compute a large number of financial measures using ratios to gauge bank performance. This paper calculates efficiency, an important indicator of financial performance of banks in India using Data Envelopment Analysis (DEA) for the period 2006-07. Following Jackson (1972), the paper investigates commonality that might exist among financial performance measures computed by banks in India and the estimated bank efficiency scores. Results of Factor Analysis uncovered fewer significant factors and interestingly show that efficiency scores do not cluster with other measures of bank performance despite emerging as one of the significant factor. The present paper argues that bankers and policy makers should not feel contented by looking at the standard performance measures alone. Rather, they should also try to examine bank performance vis-à-vis efficiency based on multiple inputs and outputs to capture the complete picture. A paradigm shift towards measurement of efficiency using sophisticated modeling techniques is recommended for better performance evaluation in banking.

scholarly journals Organisational performance and the use of multiple performance measures in an emerging market

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Abdallah Amhalhal ◽  
John Anchor ◽  
Marina Papalexi ◽  
Shabbir Dastgir
Keyword(s):  
Emerging Markets ◽  
Financial Performance ◽  
Performance Measures ◽  
Emerging Market ◽  
Manufacturing Companies ◽  
Organisational Performance ◽  
Cross Sectional ◽  
Content Type ◽  
Financial Performance Measures ◽  
The Relationship

PurposeThis study is an empirical investigation of the relationship between the use of 41 multiple performance measures (MPMs), including financial performance measures (FPM), non-financial performance measures (NFPMs) and organisational performance (OP) in Libya.Design/methodology/approachThe results are based on cross-sectional questionnaire survey data from 132 Libyan companies (response rate 61%), which were obtained just before the so-called Arab Spring.FindingsMPMs are used by both manufacturing and non-manufacturing companies. Libyan business organisations are more likely to use FPMs than NFPMs. However, these companies still rely more heavily on FPMs. The relationships between the use of NFPMs and OP and the use of MPMs and OP are positive and highly significant. The relationship between the use of FPMs and OP is positive but not significant.Research limitations/implicationsThe high power distance associated with the conservative, Libyan, Arab context will reinforce the tendency to use FPMs more than NFPMs. This may provide a performance advantage to those organisations which do adopt NFPMs.Practical implicationsAlthough there may be institutional barriers to the use of NFPMs in Libya, and other emerging markets, these are not insuperable and there is a payoff to their use.Originality/valueNo previous studies of emerging markets, such as the Middle East or North Africa, have looked at the relationship between OP and the adoption of such a large array of MPMs.

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

2015 ◽  
Vol 22 (4) ◽  
pp. 594-607 ◽  
Author(s):  
Wagdy M. Abdallah ◽  
Majbour Alnamri
Keyword(s):  
Middle East ◽  
Environmental Factors ◽  
Performance Measurement ◽  
Financial Performance ◽  
Cultural Values ◽  
Performance Measures ◽  
Multinational Companies ◽  
Content Type ◽  
Financial Measures ◽  
The Impact

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.

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