Referent Cognitions and Budgetary Fairness: A Research Note

Abstract

This study examines the effects of fairness in budgeting on individual performance in a nonparticipative budgeting setting. An experiment was conducted in which subjects performed a production task and were compensated under a budget-based incentive contract. Performance was lowest when an unfair budget target was assigned using an unfair budgeting process. When the budget target assigned was fair, the fairness or unfairness of the budgeting process had no effect on performance. When an unfair budget target was determined using a fair budgeting process, mean performance was not significantly different from mean performance of the subjects assigned fair budget targets. Implications of this result in assigning stretch targets are discussed.

Public and Private Forms of Opportunism within the Organization: A Joint Examination of Budget and Effort Behavior

“…This contributes to the growing body of evidence for fairness concerns in accounting experiments (Lindquist 1995;Luft and Libby 1997;Libby 2001;Kachelmeier and Towry 2002). We also find that ethical concerns reduce low effort but not budgetary slack.…”

The Attitudinal and Behavioral Effects of Nonfinancial Measures

“…Expectancy theory suggests that better subordinates' performance may be driven by their belief that the measurement evaluation procedures are fair (Vroom 1964;Porter and Lawler 1968). Additionally, since previous studies found that procedural fairness affects managerial performance in various contexts (Lind and Tyler 1988;Libby 1999;Libby 2001;Wentzel 2002;Little et al 2002), thus, we propose that procedural fairness is positively associated with managerial performance in many ways that may motivate subordinates to improve their working performances. Therefore, the following hypothesis is to be tested:…”

How Incentive Contracts and Task Complexity Influence and Facilitate Long-Term Performance

“…Much of the incentive contracting and goal setting literature in accounting (Libby 2001;Hannan 2005;Schulz et al 2008) and psychology (Heath et al 1999;Locke and Latham 2002;Seijts and Latham 2005) examines participant performance using low complexity tasks. A low complexity task is one where performance is largely a function of the effort exerted.…”

“…Tasks vary from highly complex, relatively difficult cognitive tasks, to less complex, relatively simple cognitive tasks (Goll and Rasheed 1997;Miller 1988). In less complex tasks, incentives rewarded for goal attainment have a direct, positive effect on performance through increased motivation, effort, and persistence (Libby 2001;Hannan 2005;Schulz et al 2008). In more complex tasks, incentives rewarded for goal attainment do not have the same motivational effects on performance.…”