Subjectivity in Incentive Plans

ERASMUS UNIVERSITY ROTTERDAM

Seminar Advanced Management Accounting and Control

Final Paper

“SUBJECTIVITY IN INCENTIVE PLANS”

Erasmus University Rotterdam

Author: A.C. van Dalen

Studentnumber: 276816

Course: Seminar Advanced Management Accounting and Control

Lecturor: drs. T.P.M. Welten

Department: Erasmus School of Economics

Group: Accounting, Auditing and Control

Index

Chapter 1 3

1.1 Introduction 3

1.2 Introduction to research question. 4

1.3 Subquestions. 4

1.4 Purpose. 4

1.5 Research Method. 5

1.6 Paper Construction. 5

Chapter 2 5

2.1 Introduction 5

2.2 Incentive plans 6

2.3 Performance measures 6

2.4 Subjectivity 7

2.5 Conclusion 8

Chapter 3 8

3.1 Introduction 8

3.2 Lack of objective measures 9

3.3 Discretion 10

3.4 Firm characteristics 10

3.5 Less employee risk 10

3.6 Less influence activities of employees 11

3.7 Conclusion 11

Chapter 4 12

4.1 Introduction 12

4.2 Favoritism 13

4.3 Higher bonuses 14

4.4 Biased superiors and subordinate trust 14

4.5 Influence activies of employees 16

4.6 Dislike by users 16

4.7 Motivation 17

4.8 Costs of subjective performance measures 17

4.9 Conclusion 17

Chapter 5 18

5.1 Introduction 18

5.2 Final Conclusion 19

References. 20

Chapter 1

1.1 Introduction

This chapter will contain the design of this research paper. First I will give an introduction to the main research question. After that I will describe the subquestions, purpose, research method and construction of this paper.

1.2 Introduction to research question.

Most companies use incentive plans or contracts based on a performance measurement system. There are several kinds of performance measures, on which an incentive plan is based. One way of classifying performance measures is the difference between objective and subjective performance measures.

Because individual...