The Effect of Participative Budgeting on Performance-to-Goal

학위논문 (석사)-- 서울대학교 대학원 : 경영학과 회계학전공, 2016. 8. 신재용.Despite continued popularity of participative budgeting, prior studies in this area resort to proprietary survey data, laboratory experimental evidence, or data from single firms with multi-business units due to a lack of detailed information related to participative budgeting. Using a sample of 633 firm-year observations from S&P 1500 firms for fiscal years 2009 to 2011, I examine the relation between the use of participative budgeting and performance-to-goal. First, I find that the performance-to-goal of participative budgeting firms is higher than that of non-participative budgeting firms. Second, I investigate whether higher performance-to-goal is driven by motivational effects or slack building activities triggered by participative budgeting. I decompose performance-to-goal into effort level and budgetary slack using analysts forecasts as the benchmark to show that motivational effects dominate and result in higher performance-to-goal for participative budgeting firms. Overall, this study reaffirms the continued popularity of participative budgeting in a budget-setting process.1. INTRODUCTION 1 2. RELATED LITERATURE AND HYPOTHESES DEVELOPMENT 6 2.1. Related Literature 6 2.2. Research Question 10 2.3. The First Mechanism: The Effect of Participative Budgeting Use on Effort toward Performance 11 2.4. The Second Mechanism: The Effect of Participative Budgeting Use on Effort toward Goal Negotiation 12 3. INSTITUTIONAL BACKGROUND AND SAMPLE SELECTION 14 3.1. The New SEC Disclosure Rules on Executive Compensation 14 3.2. Sample Construction and Descriptive Statistics 15 4. RESEARCH DESIGN, SUMMARY STATISTICS, AND EMPIRICAL RESULTS 18 4.1. Research Design 18 4.2. Summary Statistics 22 4.3. Empirical Results 24 4.4. Robustness Tests 26 5. CONCLUSION 27 APPENDIX 29 REFERENCES 32Maste

Pay, Performance, and Participation

Our chapter identifies key dimensions on which organizations make employee compensation decisions and examines the emerging research evidence on the consequences of such decisions for attitudes, behaviors, and organization performance. We provide some general suggestions that may prove helpful in future research. First, there is increased recognition that pay decisions take place in the context of implicit or explicit contracts between employees and specific organizations. As a result, we encourage researchers to continue to give greater attention to the role of organization differences in compensation. Second, because pay is multidimensional, attention should not be restricted to organization differences in pay level. Organization differences in benefits, structure, and means of recognizing individual employees contributions also warrant attention. As an example of how the focus can be expanded, we provide new empirical evidence on organization differences in the market sensitivity of pay structures. Third, we note that the success of pay programs depends not only on decisions about pay per se, but also the process used in making communicating, and administering such decisions. More broadly, the influence of contextual factors, such as the nature of other employee relations practices (e.g., staffmg, development, employment security), needs to be considered to a greater extent in compensation research. In addition to these broad suggestions, we provide specific ideas on future research directions throughout the chapter

When one size does not fit all:Using <i>ex post</i> subjective ratings to provide parity in risk-adjusted compensation

Firms typically use a ‘one-size-fits-all’ (OSFA) compensation contract that specifies a common formulaic relation between performance and compensation (i.e., a performance bonus) for non-executive managers in similar jobs. However, a contract that is appropriate on average, may be suboptimal for individual managers if heterogeneity in the operating environment creates varying compensation risk. We use field data from a retail firm that introduced an OSFA bonus compensation plan for its store managers. The common bonus formula is based on a weighted sum of objective measures of performance and a subjective rating made by supervisors. The firm intended the supervisors’ discretionary subjective rating to evaluate performance on dimensions that are difficult to measure (e.g., store appearance). We test and find that supervisors give uniformly higher subjective ratings to managers whose objective measure of sales performance is measured with greater noise, and to managers who face higher performance target difficulty, the latter assessed both prior to (ex ante) and subsequent to (ex post) the evaluation period. These results obtain after controlling for manager ability and performance, and for alternative mechanisms to mitigate differences in compensation risk (e.g., salary changes, sales target changes, and bonus adjustments). The evidence suggests that supervisors use discretion in subjective ratings to provide manager-specific risk premiums for non-executive managers who are subject to an OSFA contract

Target Setting And Firm Performance: A Review

The consequences of missing targets can be found on a daily basis in many organizations. As such, targets and target setting in an extremely important topic to companies and one that should receive more attention. Although the vast amount of reasons for missing targets are difficult to study, the process of setting the target which includes budgeting has been proven to affect performance and achievement through goal setting theory (Locke &amp; Latham, 2002). Thus, targets are an important element in almost every organization (Chenhall, 2003). We focus this review of literature exclusively in the relationship between target setting and firm performance and as such consolidate, organize, and synthesize past literature in this field and provide a clear direction for future research. We further identify two impactors found to affect firm and management performance but never researched as an impactor of the relationship between target setting and firm performance. Those impactors are Transparency of targets and length of management experience. In this paper, we fill the gaps identified above and inform the study of target setting in order to spark future research on this topic. We also identify the dimensions affecting the relationship between target setting and firm performance as well as the different measurement approaches in target setting literature

Assessing Empirical Research in Managerial Accounting: A Value-Based Management Perspective

This paper applies a value-based management framework to critically review empirical research in managerial accounting. This framework enables us to place the exceptionally diverse set of managerial accounting studies from the past several decades into an integrated structure. Our synthesis highlights the many consistent results in prior research, identifies remaining gaps and inconsistencies, discusses common methodological and econometric problems, and suggests fruitful avenues for future managerial accounting research

Motivation - A selected bibliography

Bibliography of publications on motivatio

Target Ambiguity and Ratchet Effect

Prior literature documents that the subordinate has an incentive to reduce the effort level when current performance affects future target performance, which is known as the ratchet effect. The ratchet literature, however, assumes that the superior can discern the true (desired) level of target performance in the short run, and it does not explicitly explain how the ratchet effect varies along the process of identifying the true target performance. This study analytically investigates the impact of target ambiguity on the magnitude of the ratchet effect. The analysis shows stronger ratchet effect when the superior possesses limited prior knowledge about the indubitable target performance. With higher ambiguity that the superior faces in setting target performance, the superior must depend largely on the subordinates actual performance. As a consequence, the subordinate becomes more reluctant to exert effort for the best level of current performance because it will influence the future standard to be substantially tough. It also shows that the subordinates effort reduction following a highly ambiguous performance target can be alleviated when the subordinate actively participates in the target setting process and when performance measures are adequately noisy.This study was supported by the Institute of Management Research at Seoul National University

A qualitative study of team-based self-management in a Southern African organization

A Southern African (Zimbabwean) nickel refinery's team-based employee involvement initiative is studied using a qualitative, single case design with the objective of describing, understanding and characterising a Self Directed Work Team's experience in its context. It is found, through a variety of triangulated case study methods, that the selected team's work, and its members' perception of it, have changed significantly from traditional 'foreman supervised' and ' gang-leader driven' organization to relatively informed decision making, objective driven, multi-skilled teamwork. Findings are analysed in the light of international and Southern African literature and case studies of enterprise level, team-based employee involvement in work related decision making. Context considerations, in understanding the team and its potential for self direction were found to be pervasive. The initiative was found to be part of a bundle of complementary interventions that top management perceived to be organizational survival imperatives. Successful implementation was largely limited to the Smelter and Refinery Business Units (BSR Ltd) which were led by a succession of dynamic and committed senior line managers. The failure to diffuse the initiative to the rest of the organization (the organization's mining division) was blamed on the departure of the key sponsor as well as wider corporate and societal systemic constraints. The contextualised study suggests ways of seeing, and possibly going beyond the claimed and real constraints

Participative Budgeting and Participant Motivation: A Review of the Literature

In their discussion - Participative Budgeting and Participant Motivation: A Review of the Literature - by Frederick J. Demicco, Assistant Professor, School of Hotel, Restaurant and Institutional Management, The Pennsylvania State University and Steven J. Dempsey, Fulton F. Galer, Martin Baker, Graduate Assistants, College of Business at Virginia Polytechnic Institute and State University, the authors initially observe: “In recent years behavioral literature has stressed the importance of participation In goal-setting by those most directly affected by those goals. The common postulate is that greater participation by employees in the various management functions, especially the planning function, will lead to improved motivation, performance, coordination, and functional behavior. The authors analyze this postulate as it relates to the budgeting process and discuss whether or not participative budgeting has a significant positive impact on the motivations of budget participants.” In defining the concept of budgeting, the authors offer: “Budgeting is usually viewed as encompassing the preparation and adoption of a detailed financial operating plan…” In furthering that statement they also furnish that budgeting’s focus is to influence, in a positive way, how managers plan and coordinate the activities of a property in a way that will enhance their own performance. In essence, framing an organization within its described boundaries, and realizing its established goals. The authors will have you know, to control budget is to control operations. What kind of parallels can be drawn between the technical methods and procedures of budgeting, and managerial behavior? “In an effort to answer this question, Ronen and Livingstone have suggested that a fourth objective of budgeting exists, that of motivation,” say the authors with attribution. “The managerial function of motivation is manipulative in nature.” Demicco, Dempsey, Galer, and Baker attempt to quantify motivation as a psychological premise using the expectancy theory, which encompasses empirical support, intuitive appeal, and ease of application to the budgetary process. They also present you with House\u27s Path-Goal model; essentially a mathematics type formula designed to gauge motivation. You really need to see this. The views of Argyris are also explored in particular detail. Although, the Argyris study was primarily aimed at manufacturing firms, and the effects on line-supervisors of the manufacturing budgets which were used to control and evaluate their performance, its application is relevant to the hospitality industry. As the title suggests, other notables in the field of behavioral motivation theory, and participation are also referenced. “Behavioral theory has been moving away from models of purported general applicability toward contingency models that are suited for particular situations,” say the authors in closing. “It is conceivable that some time in the future, contingency models will make possible the tailoring of budget strategies to individual budget holder personalities.