pdf - Nyenrode Business Universiteit

4.5. CONCLUSIONS AND DISCUSSION 115
By self-selecting the performance metrics (or the weights placed on the individual metrics in
the performance measurement system), the manager bypasses the opportunism-mitigating
properties of RPE. This post-hoc explanation suggests that RPE use may not reduce opportunism.
However, it only partially explains the opportunism-increasing effect of RPE
use found by this study. This positive relation between RPE use and opportunism requires
an additional explanation, which may be found in the risk of collusion amongst agents 16 .
Holmstrom (1982) argues that the possibility of collaboration among peers provides the
evaluated employee with the opportunity to influence his performance target in his favour.
If RPE is implemented in a manner that has a high risk of collusion, RPE use may actually
increase the room for managerial opportunism. Following Gibbons & Murphy (1990),
I argue that this case will seem increasingly possible if the peer group consists of other
business units within the same organization. The data in my study provide some limited
information about the composition of the peer group. In chapter 2 of this thesis,
table 2.9 (page 40) shows that the majority of the RPE adopters rely on internal peers or
both internal and external peers to determine their performance targets. The limited use
of external peer groups renders RPE vulnerable to collusion amongst agents 17 . Doing so
can increase (instead of decrease) the room that managers have to behave opportunistically.
Another empirical result concerns the room that managers have to engage in opportunistic
behaviour under their installed control system. On average, the respondents of my study
claimed to have limited room for opportunism. This result holds for both RPE adopters
and non-users of RPE. However, the experimental literature supports the idea that selfinterest
seeking behaviour is highly prevalent amongst individuals. This notion may imply
that, on average, the control systems within organizations are effective at reducing the
room for opportunism either via RPE or via other control instruments.
As with any study, this research is subject to a number of caveats. The two most important
limitations of this study are the following: 1) the fact that I focus on an isolated control
instrument instead of taking a more holistic approach, and 2) the absence of information
on the risk of collaboration and opportunistic peer group compositions. As I focus on a
single control instrument, I do not have data on other potential control instruments that
are used to reduce the room for managerial opportunism. This may affect the results of this
study to some extent. For example, I did not gather data on other means of performance
standard determination. Successfully using other externally determined performance targets
to mitigate opportunism can affect the statistical relation between RPE and the room
for managerial opportunism.
16 Collusive behaviour amongst agents is documented by Towry (2003) and Zhang (2008). Both studies
find in their experiments a positive relation between the possibility of agents to communicate amongst
each other and the forming of collusive agreements. The possibility to communicate with other agents is
especially relevant within a situation of internal peer comparison instead of with external peers.
17 The consequences of using external peers to form a reference group is further explored in section 5.1.