The Role of Financial Incentives in Balanced Scorecard-Based Performance Evaluations: Correcting Mood Congruency Biases

Abstract

Moods are low-intensity affective states that individuals bring to a decision, and may be especially important when the balanced scorecard (BSC) is used for performance evaluation purposes. We propose that financial incentives can motivate decision-makers to correct mood congruency biases, in which judgments and decisions are consistent with moods. In experiment 1, participants rated the performance of one division manager based on two accounting measures and another manager based on a 16-measure BSC; there were mood congruency biases at both levels of information load. Financial incentives to make benchmark-consistent judgments eliminated bias in the former condition but not in the BSC condition. In experiment 2, incentives were offered and performance evaluations were based on an eightmeasure BSC; mood congruency bias was eliminated. Results suggest that management control systems, specifically financial incentives, should be included in future affect correction research.

The effects of performance report layout on managers’ subjective evaluation judgments

“…This literature has found that subjective weighting processes are affected by intentional and unintentional biases. For example, studies have found evidence of favoritism (Ittner et al 2003), common measure bias Salterio 2000, Libby et al 2004), financial measure bias (Cardinaels and van Veen-Dirks 2010, Johnson et al 2014), outcome effects (Long et al 2015) and mood bias (Ding and Beaulieu 2011). However, with the exception of Bol et al (2016), no other study has looked at the leniency or compression of overall ratings that are the outcome of subjective weighting processes.…”

The Impact of a Disaggregation Strategy With Supplementary Displays Towards Balanced Scorecard Performance Evaluation

“…Some studies examine the effects of information management in the context of the balanced scorecard (Lipe & Salterio, 2000;Itner, Larcker, & Meyer;Banker, Chang, and Pizzini, 2004;Ding & Beaulieu, 2011). These studies tend to view the information's management processes such as subjectivity, the mood difference, as well as an individual's cognitive effort.…”

“…Overload Ding and Beaulieu (2011) argue that the information generated from the use of the balanced scorecard is classified as an information overload. Referring to the description and Mengis and Eppler (2004), we could conclude that the information generated by the balanced scorecard will positively affect the performance of decision-making, as well as the quality of the decision, until at a certain point, the information provided will degrade the accuracy of the decision-making.…”

“…It generates a lot of information that exceeds a human's capacity to process information. Consequently, the excess of information leads to a phenomenon called information overload (Ding & Beaulieu, 2011). If the company cannot cope or find ways to 2017 Kasingku and Goedono 235 mitigate this information overload, the investment in a balanced scorecard could be futile since its users could not obtain the optimal benefits of using it (Neumann, Roberts, & Cauvin, 2010).…”

“…The use of the balanced scorecard as a performance measurement tool brings several problems (Lipe & Salterio, 2000;Itner, Larcker, & Meyer, 2003;Banker, Chang, and Pizzini, 2004;Ding & Beaulieu, 2011). The previous research discusses the complexity of using a balanced scorecard.…”