The Interplay Between Forward-Looking Measures and Target Setting

Abstract

We examine whether financial targets are based on both forward-looking and financial information, rather than on financial information only. We collect sales and performance appraisal data of store managers in a retail chain. The firm issues directives focused on the provision of excellent customer service and assesses store managers’ compliance with these directives subjectively. We demonstrate that, controlling for current sales, compliance with directives scores predicts future sales performance. We find that, next to objective sales information, this forward-looking information is impounded in the next year’s sales target. Finally, we find some evidence that suggests that incorporating forward-looking information improves the accuracy of sales targets. This paper was accepted by Mary Barth, accounting.

Manager narcissism, target difficulty, and employee dysfunctional behavior

“…Our finding also contributes to the target‐setting literature (Arnold & Artz, 2015; Bouwens & Kroos, 2011, 2017; Ioannou et al, 2016), by documenting that managers' narcissism plays an important role in affecting their choice of target difficulty and eventually leads to employee dysfunctional behaviors. In this regard, our study also has practical implications by suggesting that top management teams should take manager narcissism into consideration when making decisions such as manager selection, department or group structure, and delegating decision rights over target design.…”

Relative Performance Evaluation and the Ratchet Effect

“…It is well documented now that targets ratchet in the sense that exceeding a target is followed by a target increase in the next period. Some studies further suggest that target ratcheting is asymmetric in that failure to meet a target is associated with a weaker effect on target revisions (Leone and Rock ; Bouwens and Kroos ), although other studies find no asymmetric effect or an asymmetric effect with the opposite sign (Anderson et al ; Kim and Yang ; Indjejikian, Matějka, Merchant et al ).…”

“…It is well documented now that targets ratchet in the sense that exceeding a target is followed by a target increase in the next period. Some studies further suggest that target ratcheting is asymmetric in that failure to meet a target is associated with a weaker effect on target revisions (Leone and Rock 2002;Bouwens and Kroos 2016), although other studies find no asymmetric effect or an asymmetric effect with the opposite sign (Anderson et al 2010;Kim and Yang 2012;Indjejikian, Mat ejka, Merchant et al 2014). Indjejikian, Mat ejka, and Schloetzer (2014) point out that target ratcheting as reflected in the sensitivity of target revisions to past own performance does not automatically imply the ratchet effect on incentives, that is, managerial incentives to withhold end-of-period effort to prevent future target increases.…”

Organizational Goals, Outcomes, and the Assessment of Performance: Reconceptualizing Success in Management Studies

“…There are a few studies that are interested in exploring the intersection between financial and non‐financial studies. For example, Bouwens and Kroos (2017) focus on the interplay between forward‐looking non‐financial information and setting financial targets. Academic spinoffs are an example of hybrid organization pursuing both financial and non‐financial goals.…”