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114 CHAPTER 4. OPPORTUNISM MITIGATION EFFECTIVENESS
opportunism perspective provides a promising theoretical explanation for RPE use. However,
the empirical support for this explanation of RPE is scarce. As the first study to my
knowledge, chapter 2 of my thesis seeks empirical support for the opportunism-mitigation
perspective on RPE at the level of business unit managers. Overall, the analyses in chapter
2 show no robust support for the opportunism-mitigation perspective on RPE. This finding
may be the result of the limited added value of RPE to the reduction of opportunism at
the lower echelons of the organization. However, the limited support may also be due to
the model specification, which may reduce the statistical power of the analyses. The model
specification in chapter 2 is needed to test the chapter’s hypotheses. However, the current
chapter takes a different approach. This chapter allows for more powerful and direct tests
of the opportunism-mitigating explanation of RPE theory.
The current chapter develops a model that assesses whether organizational reliance on
RPE mitigates the room for managerial opportunism. For the empirical analysis, I use a
structural equation model to analyse survey data on 325 business unit managers in the
Netherlands. Overall, the analyses yield no support for the opportunism-mitigation explanation
of RPE theory. Rather, the findings indicate that using RPE increases the room
for managerial opportunism. This result is robust over two operationalizations of RPE
use. Similar to chapters 2 and 3, this chapter relies on a broad, unspecific measure of
RPE use and on a measure that focuses on the explicit application of RPE to performance
targets. Both measures yield qualitatively and quantitatively similar results. The structural
equation models explain 14% of the variance in the dependent variable (i.e., ‘room
for managerial opportunism’).
A first explanation for not finding a negative effect of RPE use on the room for managerial
opportunism is found in the work of Davila & Penalva (2006) and Ittner et al.
(1997). Davila & Penalva (2006) describe how managers can influence the composition
and weighting of their own performance measurement system. Managers self-select a set of
performance targets that is highly controllable. Ittner et al. (1997) argue that managers
potentially influence the composition of their performance measurement systems to obtain
more manipulable performance measures. If managers can influence their performance
measurement systems, they can also influence their performance standards. As a result, a
manager can choose to be evaluated by those measures on which the manager compares
favourably with his peers. For example, a manager’s business unit may consistently score
high on customer satisfaction and revenues but score poorly on costs. My data support
this observation by Ittner et al. (1997). My respondents claim that they can negotiate or
otherwise influence their performance criteria to, on average, some extent. The manager’s
influence on the performance criteria selection is positively related to the use of RPE for
explicit target setting (i.e., RPE-based-Targets), but not with less specific applications of
RPE (i.e., measured with RPE-Use) 15 .
15 The respondent’s influence on the selection of the performance criteria is positivelly correlated with
RPE-based-Targets (0.148, p < 0.05), but not with RPE-Use (0.022, p = 0.70).