平衡計分卡：誘因契約種類與策略事業單位現狀對於經理人努力與績效之影響

行政院國家科學委員會專題研究計畫 成果報告

平衡計分卡：誘因契約種類與策略事業單位現狀對於經理人

努力與績效之影響

中 華 民 國 93 年 12 月 13 日

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Hung-Chao Yu Department of Accounting

College of Commerce National Chengchi University

[email protected] 886-2-2938-7693

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1. INTRODUCTION

The balanced scorecard (BSC) was originally introduced in 1992 to provide a business with a framework for selecting multi-dimensional performance measures (both financial and non-financial) linked to strategic objectives into financial, customer, internal process, and learning and growth perspectives (Kaplan and Norton 1992). By amalgamating these four perspectives, the concept of BSC has now evolved into an organizing tool for a strategic management system because it helps managers at different levels understand their cross-functional relationships and, therefore, lead to improved problem-solving and decision-making (Kaplan and Norton 1996).

A critical characteristic of the BSC is the articulation of linkages between performance measures and strategic objectives (Banker, Janakiraman, and Konstans 2001). In particular, if the linkages are identified and understood by managers, firm’s strategic objectives can be translated into feasible and reasonable measures to help the firm to achieve its pre-specified goals. Prior research in the area of BSC has addressed this issue from different perspectives. Ittner and Larcker (1998a), for example, depicts the trend of linking strategies to performance measures. In addition, Banker, Potter, and Srinivasan (2000) and Ittner and Larcker (1998b) provide empirical evidence for the existence of the strategic linkage between financial and non-financial measures. In contrast, Lipe and Salterio (2000) experimentally shows that superiors’ evaluations are based only on BSC measures that are common across different business units rather than measures that are unique to individual business units. Since some of the common and unique measures are not linked to a business unit’s strategic objectives, Lipe and Salterio’s (2000) results do not provide evidence on whether superiors would rely on unique measures that are linked to strategies. Banker, Chang, and Pizzini (2004) overcomes this problem and experimentally shows that performance evaluations are influenced by strategically linked measures significantly more than non-linked measures only when subjects are provided with detailed information about a business unit’s strategies.

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measures and strategic objectives, few attempts, if any, have been made to address whether incentive contract may affect the efficacy of the BSC. This issue is important because of three reasons. First, Malina and Selto (2001) emphasizes the importance of the connection between incentives and performance measures derived from the BSC. In particular, they point out that, if a BSC provides meaningful rewards that are related to the performance measures, it is likely that the BSC will promote strategic alignment and positive motivation and outcomes. Second, a 1999 survey by compensation consultants Hewitt Associates indicates that thirteen out of fifteen companies implementing the BSC believe that aligning employee rewards with the achievement of BSC measures is a powerful mechanism for generating focus on what is important to the whole organization (Niven 2002). Finally, Lambert (2001) indicates that much of the motivation for current accounting research relates to the control of incentive problems. In addition, Bushman and Smith (2001) also identifies that creating incentives to take actions is one of the three fundamental contracting roles for accounting information.1 In fact, during the past two decades, the design of incentive contract to motivate agent’s effort has received much attention in managerial accounting.2 Since empirical evidence has shown that incentive contracts do affect agent’s behavior (Prendergast 1999) and an understanding of how incentive scheme should be designed constitutes a cornerstone of the theory of the firm (Baker, Jensen, and Murphy 1988), it is crucial and necessary to shed light on how incentive contracts may affect managers’ effort levels and performance under a BSC environment. The italic item shown in Figure 1 highlights the importance of this study to the BSC literature.

[Insert Figure 1 here]

This study also examines the effect of strategic business unit’s (SBU) status on manager’s effort choice and the resulting performance. In general, if a SBU is mature or well-established, its manager may have weaker incentive to exert more effort because most of the performance measures are

1_{The other two contracting roles are the filtering of common noise from other performance measures and the rebalancing of} managerial effort across multiple activities.

2_{See Gibbons (1998), Lambert (2001), Murphy (1999) and Prendergast (1999) for prior reviews of aspects of empirical and} theoretical incentive contract literature.

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relatively easier to achieve. In contrast, a manager whose SBU is still in its infant stage should have stronger motivation to apply more effort to “beat” the performance targets. This issue is important to the BSC because, if SBU’s status does matter to manager’s effort and performance, the supervisor of a firm should take this factor into account in setting up the performance targets and evaluating SBUs’ performances. More important, the firm may need to design different reward systems for SBUs with different statuses. Obviously, Lipe and Salterio (2000) and Banker et al. (2004) do not investigate the role SBU status may play to the success of a BSC system.

The main purpose of this study is to adopt the laboratory experiments to examine how different types of incentive contract and SBU’s status may affect managerial effort and performance in a BSC setting.

2. EXPERIMENTAL RESULTS Please consult with the author for details.

FIGURE 1

An Overall Framework of Balanced Scorecard

Firm sets up overall operating goals Firm chooses strategies to achieve the goals Adopt the Balanced Scorecard Budgeting and resource allocations Operating activities (e.g., manufacturing, inventory, personnel, sales, purchase, customer

management, marketing, …)

Outputs and performance

measures realized

c Firm selects performance measures

linked to strategies covering four perspectives (financial, customers, internal process, learning and growth).

d Firm designs incentive contracts that

incorporate all performance measures for employees at various levels.

Goals achieved? Feedbacks

FIGURE 2 Sequence of Actions

The principal announces The principal selects The manager chooses The actual performance Manager is paid

the incentive contract performance measures an effort level based on measures under each BSC based on the

offered to the manager and sets up targets the balanced scorecard perspectives are realized incentive contract

FIGURE 3

Strategy Maps for the Smithson Stores

Panel A: The Women’s Store (TWS)

Learning and Growth Internal Process Customer Financial

Improve knowledge and skills of brand managers Refine brand image and leverage it to new clothing lines Increase sales to existing customers at current stores Grow same-store sales Build long-term stockholder value Enhance customers’ in-store experience Increase sales associates’ satisfaction and morale Increase customer satisfaction Improve price markups

FIGURE 3

Strategy Maps for the Smithson Stores (cont’d) Panel B: The Family Store (TFS)

Learning and Growth Internal Process Customer Financial

Develop an innovative and experienced marketing team Institute an original and effective advertising campaign

Attract more new customers to the

chain

Grow new store sales Build long-term stockholder value Enhance customers’ in-store experience Increase sales associates’ satisfaction and morale Increase customer satisfaction Improve price markups

8 TABLE 1

Strategy of Two Strategic Business Units of Smithson Stores*

Presented below is a brief description of the strategy of The Women’s Store and The Family Store. Please read them carefully.

The Women’s Store

The Women’s Store (TWS) is an established specialty retailer that caters to fashion-conscious professional women. TWS’s strong cash flows will be needed to fuel growth in Smithson’s younger SBUs. TWS will contribute to corporate objectives by using its existing store network to further penetrate its target market, while improving margins and cash flows. Accordingly, sales growth will come through the introduction of new clothing lines, such as its business casual line, and excellent in-store shopping assistance designed to accommodate style-conscious, time-constrained customers. TWS will leverage its distinctive brand image to drive new clothing sales and margin growth within its target market, which is not very price sensitive. TWS’s goal is to become a store in which women can shop for all of their wardrobe needs, from clothing to accessories to shoes, in one convenient location. By developing skilled brand managers who can broaden its product line to accommodate “one stop shopping” and by offering greater in-store shopping assistance, TWS hopes to compete with catalogue and on-line retailers. Central to TWS’s growth strategy is the creation of a “perfect in-store shopping experience” that will entice busy women to visit the store, rather than shop on-line or via the phone. The Family Store

The Family Store (TFS), which opened its door three years ago, is one of several retail chains in the Smithson portfolio that is still in the “growth” stage of the business lifecycle. TFS carries classic, high-quality casual clothing, such as khakis, jeans, and polo shirt for men, women, and children. Although TFS offers stylish and high-quality merchandise, it is more of “fashion follower” than a “fashion leader.” Therefore, unlike TWS, which seeks to introduce many new product lines, TFS identifies a relatively narrow set of basic and functional styles each season and offers these items in a variety of color and sizes. Management expects this new, high-end retailer to drive a significant portion of Smithson’s overall growth, as TFS plans to double the number of stores over the next two years.

TFS’s target customers are primarily young, upper middle-class families with significant disposable income, but little free time. TFS’s combination of classic, high-quality men’s, women’s and children’s apparel enables busy parents to shop for the entire family in one location. To attract this customer segment to its store, TFS is building an experienced marketing team that will launch an aggressive advertising campaign featuring memorable, humorous commercials appealing to all ages. Additionally, TFS plans to exceed customers’ shopping expectations with its fun “in-store” atmosphere, virtually appealing displays and excellent service.

*

9 TABLE 2

The Balanced Scorecard for the Smithson Stores

Panel A: The Women’s Store (TWS)

(1) Financial measures: Weights (%) Targets

1 Sales margins 30 60%

2 Sales growth per store 10 15% (2) Customer measures:

1 Customer satisfaction rating 15 80% 2 Sales per square foot of retail space 5 $30,000 (3) Internal process measures:

1 Brand recognition rating 10 80% 2 “Mystery Shopper” audit rating 10 85% (4) Learning and Growth measures:

1 Employee satisfaction 12 80%

2 Hours of training invested in manager per year 8 80 hrs

Panel B: The Family Store (TFS)

(1) Financial measures: Weights (%) Targets

1 Sales margins 30 45%

2 Percentage of sales from new stores 10 60% (2) Customer measures:

1 Customer satisfaction rating 15 70% 2 Percentage of sales to new customers 5 5% (3) Internal process measures:

1 Market share per advertising dollar 10 5% 2 “Mystery Shopper” audit rating 10 85% (4) Learning and Growth measures:

1 Employee satisfaction 12 75%

2 Retail experience of marketing managers 8 8 yrs

10 TABLE 3

Determination of Overall Performance Score (OPS) using the Balanced Scorecard

Step #1: Define the Color Rating of Each Measure

“RED” = Fails to meet criteria for acceptability “WHITE” = Meets criteria for acceptability

“YELLOW” = Satisfactorily meets criteria for acceptability “GREEN” = Exceeds meet criteria for acceptability

Step #2: Establish Quantitative Thresholds for Each Color Rating

“RED” = Each measure’s realized number < 0.75×Target

“WEHITE” = 0.75×Target ≤ Each measure’s realized number < Target “YELLOW” = Target ≤ Each measure’s realized number < 1.1×Target “GREEN” = Each measure’s realized number ≥ 1.1×Target

Step #3: Assign Performance Score to Each Color Rating

“RED” = 0 “WHITE” = 0.4 “YELLOW” = 0.7 “GREEN” = 1.0

Step #4: Calculate the Overall Performance Score for Each Strategic Business Unit

The overall performance score of an SBU is computed by multiplying the performance score of each measure by its corresponding weight. That is,

Overall Performance Score (OPS) =

∑

(

) (

)

= × 8 1 Weight Score e Performanc i i i

Features of this performance measurement system:

1 Simulate real world OPS introduced in Malina and Selto (2001, JMAR) 2 Easy to understand by subjects

3 Subjects have the chance to “play” their performance by over-achievement on some measures and under-achievement on others.

4 The Hay Group study finds that bonus payouts typically start when performance reaches 75% of the targets (Kaplan and Norton 2001, 254).

11 TABLE 4

Functional Form of Realized Net Income and Total Bonus Percentage

Panel A: Realized Net Income as a Function of OPS

TWS: Realized Net Income (OPS) = $90,000 + $2,500,000 × (OPS)－$1,200,000 × (OPS)2 TFS: Realized Net Income (OPS) = $45,000 + $2,500,000 × (OPS)－$1,000,000 × (OPS)2

Panel B: The Graphical Presentation of Realized Net Income(OPS)

$0 $200,000 $400,000 $600,000 $800,000 $1,000,000 $1,200,000 $1,400,000 $1,600,000 $1,800,000 0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0

Overall Performance Score (OPS)

R eal iz ed N et I nc om e

Panel C: The Total Bonus Percentageφ

φ = The percentage of realized net income the Smithson Store will provide to each of its two

SBUs (i.e., TWS and TFS) at the end of the period as the bonus.

= 0.15

Features of this functional form: 1 f’ > 0 and f” < 0 2 TFS has higher NI because of its growing status..

TWS TFS

TABLE 5

“Formula-based Performance-weighted” (FBPW) Balanced Scorecard Incentive Contract － Using TWS as an example Manager’s Payoff = a (fixed salary) + b (bonus)

Panel A: The Fixed Salary

a

Panel B: Determination of bonus share b Percentage

better (worse) Color Performance Bonus

Target Weight Actual than target Ranking Score Sharing* (1) Financial measures: (A) (B) (C) (D)=[(C)-(A)]/(A) (E) (B)×(E)

c Sales margins 60% 30% 80% 33% GREEN 1 0.300φ

d Sales growth per store 15% 10% 13% (20%) WHITE 0.4 0.040φ

(2) Customer measures:

c Customer satisfaction rating 80% 15% 84% 5% YELLOW 0.7 0.105φ d Sales per square foot of space $30,000 5% $18,000 (40%) RED 0 0.000φ

(3) Internal Process measures:

c Brand recognition rating 80% 15% 73% (8.75%) YELLOW 0.7 0.105φ d “Mystery shopper” audit rating 85% 10% 85% 0% YELLOW 0.7 0.070φ

(4) Learning and Growth measures:

c Employee satisfaction 80% 10% 90% 12.5% GREEN 1 0.100φ d Hours of training brand manager 80 hrs 5% 68hrs (15%) WHITE 0.4 0.020φ

Total bonus earned by the TWS manager 0.740φ

*_{The variable} φ _{denotes the percentage of net income the Smithson Store will provide to each of its two SBUs (i.e., TWS and TFS) at the end of the period as the bonus,}

13 TABLE 6

“Formula-based Threshold” (FBTH) Balanced Scorecard Incentive Contract － Using TWS as an example Manager’s Payoff = a (fixed salary) + b (bonus)

Panel A: The Fixed Salary

a

Panel B: Determination of bonus share b Actual

exceeds Bonus

Target Weight Actual target? Sharing*

(1) Financial measures: (A) (B) (C) (C) > (A)? (D) = (B)

c Sales margins 60% 30% 80% Yes 0.30φ d Sales growth per store 15% 10% 13% No 0 (2) Customer measures:

c Customer satisfaction rating 80% 15% 84% Yes 0.15φ d Sales per square foot of space $30,000 5% $18,000 No 0 (3) Internal Process measures:

c Brand recognition rating 80% 15% 73% No 0 d “Mystery shopper” audit rating 85% 10% 85% Yes 0.10φ (4) Learning and Growth measures:

c Employee satisfaction 80% 10% 90% Yes 0.10φ d Hours of training brand manager 80 hrs 5% 68hrs No 0

Total bonus earned by the TWS manager 0.65φ

*_{The variable φ denotes the percentage of net income the Smithson Store will provide to each of its two SBUs (i.e., TWS and} TFS) at the end of the period as the bonus, where 0≤ϕ≤1. In the experiments, the φ is set to 0.15.

TABLE 7

“Formula-based Performance Rating ” (FBPR) Balanced Scorecard Incentive Contract － Using TWS as an example Manager’s Payoff = a (fixed salary) + b (bonus)

Panel A: The Fixed Salary

a

Panel B: Calculate the Overall Performance Score (OPS, see Table 3)

Percentage

better (worse) Color Performance

Target Weight Actual than target Ranking Score OPS

(1) Financial measures: (A) (B) (C) (D)=[(C)-(A)]/(A) (E) (B)×(E)

c Sales margins 60% 30% 80% 33% GREEN 1 0.300

d Sales growth per store 15% 10% 13% (20%) WHITE 0.4 0.040

(2) Customer measures:

c Customer satisfaction rating 80% 15% 84% 5% YELLOW 0.7 0.105 d Sales per square foot of space $30,000 5% $18,000 (40%) RED 0 0.000

(3) Internal Process measures:

c Brand recognition rating 80% 15% 73% (8.75%) YELLOW 0.7 0.105 d “Mystery shopper” audit rating 85% 10% 85% 0% YELLOW 0.7 0.070

(4) Learning and Growth measures:

c Employee satisfaction 80% 10% 90% 12.5% GREEN 1 0.100 d Hours of training brand manager 80 hrs 5% 68hrs (15%) WHITE 0.4 0.020

OPS earned by the TWS manager 0.740

TABLE 7

“Formula-based Performance Rating ” (FBPR) Balanced Scorecard Incentive Contract － Using TWS as an example (cont’d) Manager’s Payoff = a (fixed salary) + b (bonus)

Panel C: Define the Performance Rating and Corresponding Bonus Share b

OS = Outstanding Performance = OPS ≥ 0.900 B b = 0.90φ

AT = At Stretched Target = 0.800 ≤ OPS < 0.900 B b = 0.75φ

GA = Performance is Acceptable = 0.700 ≤ OPS < 0.800 B b = 0.55φ AV = Average Performance = 0.600 ≤ OPS < 0.700 B b = 0.40φ NA = Performance is not Acceptable = OPS < 0.600 B b = 0

Panel D: Determination of the Appropriate bonus share b

Since in the example the TWS manager’s OPS is 0.740, his / her Performance Rating is GA. Therefore, the TWS manager will earn a bonus of 0.55φ.

*_{The variable} φ _{denotes the percentage of net income the Smithson Store will provide to each of its two SBUs (i.e., TWS and TFS) at the end of the period as the bonus,}

16 TABLE 8

“Simple Linear Formula-based” (SLFB) Balanced Scorecard Incentive Contract － Using TWS as an example

Manager’s Payoff = a (fixed salary) + b (bonus)

Panel A: The Fixed Salary

a

Panel B: Determination of Bonus Share b

b = 0.11 × (Realized Net Income)*

TABLE 9

“Subjectivity-based” (SB) Balanced Scorecard Incentive Contract Manager’s Payoff = a (fixed salary) + b (bonus)

Panel A: The Fixed Salary

a

Panel B: Determination of Bonus Share b

Following Ittner, Larcker, and Meyer (2003, AR), subjectivity in the scorecard bonus plan allows the superior to: (a) reduce the “balance” in bonus awards by placing most of the weights on financial measures, (b) to incorporate factors other than the scorecard measures in performance evaluation, and (c) to change evaluation criteria from time to time. To incorporate these salient features, I change the FBPW Balanced Scorecard Incentive Contract using the following algorithm to calculate the subjective weights:

Step #1: Place most of the weights on the two financial measures. The weights are even higher when both the actual measure numbers are higher than the target numbers.

(a) If Actual < Target, the weights for the sales margins and sales growth per store are set at 50% and 20%, respectively (therefore the total weights for the financial measures are 70%).

(b) If Actual > Target, the weights for the sales margins and sales growth per store are set at 60% and 20%, respectively (therefore the total weights for the financial measures are 80%).

Step #2: Include one non-balanced scorecard factor, the relative performance ranking of the two SBUs (based on their OPS’), into the calculation of managers’ bonus with a weight of 5%. If an SBU ranks the first (or second), a 0.05φ (or zero) will be added to the manager’s bonus-sharing percentage.

Step #3: Program the computer in such a way that the computer will randomly choose two out of the three non-financial perspectives (i.e., customer, internal process, and learning and growth) into the calculation of SBU managers’ bonus in each experimental period.

If the actual financial measure numbers are greater (or smaller) than the target numbers, the total weights assigned to any two of the other three non-financial perspectives are changed to 10% and 5% (or 15% and 10%), respectively.

TABLE 9

“Subjectivity-based” (SB) Balanced Scorecard Incentive Contract － Using TWS as an example (cont’d) Manager’s Payoff = a (fixed salary) + b (bonus)

Panel C: The Subjectively-determined Bonus Share b (suppose the computer randomly chooses customer and internal process) Percentage

better (worse) Color Performance Bonus

Target Weight Actual than target Ranking Score Sharing* (1) Financial measures: (A) (B) (C) (D)=[(C)-(A)]/(A) (E) (B)×(E)

c Sales margins 60% 50% 80% 33% GREEN 1 0.500φ

d Sales growth per store 15% 20% 13% (20%) WHITE 0.4 0.080φ

(2) Customer measures:

c Customer satisfaction rating 80% 7% 84% 5% YELLOW 0.7 0.049φ d Sales per square foot of space $30,000 3% $18,000 (40%) RED 0 0.000φ

(3) Internal Process measures:

c Brand recognition rating 80% 10% 73% (8.75%) YELLOW 0.7 0.070φ d “Mystery shopper” audit rating 85% 5% 85% 0% YELLOW 0.7 0.035φ

(4) Relative OPS Ranking 1 5% 1 NA NA NA 0.050 φ

Total bonus earned by the TWS manager 0.784φ

*_{The variable} φ _{denotes the percentage of net income the Smithson Store will provide to each of its two SBUs (i.e., TWS and TFS) at the end of the period as the bonus,}

TABLE 10

The Balanced Scorecard for The Women’s Store (TWS)a

Manager’s Effort Levels (effort costs in parenthesis)d (1) Financial measures: Targetb _Weightc _{1 2 3 4 5}

($12,500) ($16,250) ($20,250) ($23,500) ($26,500)

c Sales margins 60% 30% [30%, 65%] [35%, 70%] [40%, 75%] [45%, 80%] [50%, 85%]

d Sales growth per store 15% 10% [3%, 18%] [6%, 21%] [8%, 23%] [10%, 25%] [12%, 27%]

Manager’s Effort Leveld

(2) Customer measures: 1 2 3 4 5

c Customer satisfaction rating 80% 15% [49%, 84%] [53%, 88%] [57%, 92%] [61%, 96%] [65%, 100%]

d Sales per square foot of retail space ($) 30,000 5% [10,000, 33,000] [14,000, 37,000] [18,000, 41,000] [22,000, 45,000] [26,000, 49,000]

Manager’s Effort Leveld

(3) Internal Process measures: 1 2 3 4 5

c Brand recognition rating 80% 10% [49%, 84%] [53%, 88%] [57%, 92%] [61%, 96%] [65%, 100%]

d “Mystery shopper” audit rating 85% 10% [53%, 88%] [56%, 91%] [59%, 94%] [62%, 97%] [65%, 100%]

Manager’s Effort Leveld

(4) Learning and Growth measures: 1 2 3 4 5

c Employee satisfaction 80% 12% [49%, 84%] [53%, 88%] [57%, 92%] [61%, 96%] [65%, 100%]

d Hours of training in brand managers (hours) 80 8% [50, 85] [55, 90] [60, 95] [65, 100] [70, 105]

a_{The performance measures (which are linked to TWS’s strategies) shownin this table are adopted from Banker et al. (2004).}

b_{These numbers are adopted from Banker et al. (2004).}

c_{These bonus weight allocations are based on an example presented in Chapter 10 of Niven (2002).}

d_{Ranges shown in these five columns represent the possible realized values for each performance measures (temporarily determined).}

TABLE 11

The Balanced Scorecard for The Family Store (TFS)a

Manager’s Effort Levels (effort costs in parenthesis)d (1) Financial measures: Targetb _Weightc _{1 2 3 4 5}

($15,000) ($18,750) ($22,750) ($26,000) ($29,000)

c Sales margins 45% 30% [5%, 50%] [10%, 55%] [15%, 60%] [20%, 65%] [25%, 70%]

d Percentage of sales from new stores 60% 10% [20%, 65%] [25%, 70%] [30%, 75%] [35%, 80%] [40%, 85%]

Manager’s Effort Leveld

(2) Customer measures: 1 2 3 4 5

c Customer satisfaction rating 70% 15% [30%, 75%] [35%, 80%] [40%, 85%] [45%, 90%] [50%, 95%]

d Percentage of sales to new customers 5% 5% [0%, 6%] [1%, 7%] [2%, 8%] [3%, 9%] [4%, 10%]

Manager’s Effort Leveld

(3) Customer measures: 1 2 3 4 5

c Market share per advertising dollar 5% 10% [0%, 6%] [1%, 7%] [2%, 8%] [3%, 9%] [4%, 10%]

d “Mystery shopper” audit rating 85% 10% [43%, 88%] [46%, 91%] [49%, 94%] [52%, 97%] [55%, 100%]

Manager’s Effort Leveld

(4) Customer measures: 1 2 3 4 5

c Employee satisfaction 75% 12% [35%, 80%] [40%, 85%] [45%, 90%] [50%, 95%] [55%, 100%]

d Retail experience of marketing managers 8 Yrs. 8% [2, 10] [3, 11] [4, 12] [5, 13] [6, 14]

a_{The performance measures (which are linked to TFS’s strategies) shownin this table are adopted from Banker et al. (2004).}

b_{These numbers are adopted from Banker et al. (2004).}

c_{These bonus weight allocations are based on an example presented in Chapter 10 of Niven (2002).}

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