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2.5. CONCLUSIONS AND DISCUSSION 51 seems especially relevant in situations in which the agent’s reference group consists of internal peers. Managers may collaborate rather easily with other managers within the same organization. If the evaluated manager can influence his relative performance target by colluding with other (internal) peers, the target can no longer be considered a purely external target. In contrast, external peer groups may be less vulnerable to collusion because they have less intensive and more competitive relationships amongst the peers. Using internal peer groups would not reduce the room that managers have to behave opportunistically. Unfortunately, the survey instrument contains only limited information about the use of external versus internal peer groups. More detailed data about the peer group composition would allow for further analysis of the effect of peer group choice on opportunism reduction. Despite these limitations, this study adds to our knowledge regarding RPE specifically, and performance target determination in general.
52 CHAPTER 2. RPE AT THE BUSINESS UNIT MANAGER LEVEL 2.6 Contractibility MIMIC Model (Appendix A) This appendix describes the estimation of the contractibility measure, which is used in the analyses in chapter 2. Contractibility is a requirement for the effectiveness of resultoriented control systems. According to Speklé & Verbeeten (2008), contractibility consists of three dimensions that need to be met simultaneously for the effective use of output controls, such as RPE. These dimensions are the following: 1) the ability to unambiguously specify goals ex-ante, 2) the ability to measure outputs in a reasonably undistorted manner (i.e., the output metrics correspond rather well with the actual goals that the unit needs to accomplish), and 3) the responsible individuals (in this case, the business unit managers) need to understand the process of transforming efforts into results 32 . In section 2.3.3.2, these three dimensions are operationalized as goal clarity, measurability of outputs and knowledge of transformation process. Additionally, section 2.3.3.2 describes the underlying survey items and descriptive statistics of these measures. Because the three dimensions simultaneously ‘cause’ contractibility, contractibility is a formative construct. Contractibility is not observed directly by the survey-instrument. Instead, contractibility is estimated as a latent construct by using a MIMIC model. MIMIC (Multiple Indicators for Multiple Causes) is a special case of structural equation modelling. The estimation is based on a number of measures, including measures that capture the three dimensions presented above. To specify the latent construct ‘contractibility’, one must first determine the nature and direction of the relationships between the construct and its indicators (Bisbe et al. 2007). Contractibility is estimated with two groups of constructs that differ in these aspects. The first group consists of formative indicators that capture the three dimensions goal clarity, measurability of outputs and knowledge of transformation process. Formative indicators are causal in nature. That is, increases of the formative indicators result in higher degrees of contractibility. Together, the three dimensions ’define’ contractibility. Leaving out one or more dimensions (e.g., the unambiguous specification of goals) alters the content and meaning of the construct. If I only measure contractibility based on the two remaining dimensions, the resulting construct would be theoretically different from the abovementioned definition of contractibility. This important difference distinguishes formative constructs from the more commonly used reflective constructs 33 . Whereas with formative constructs, a census of indicators is required to describe the construct, reflective constructs may be 32 Speklé & Verbeeten (2008) derive the list of conditions for contractibility from several seminal papers that apply the conditions (amongst others) to contract-oriented control structures, e.g. Otley & Berry (1980), Hofstede (1981), and Gibbons (1998). 33 For a more elaborate discussion of the differences between formative and reflective constructs as well as the consequences of these differences for model specification and measurement, see: Jarvis et al. (2003), Diamantopoulos & Siguaw (2006), and Bisbe et al. (2007).
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Relative Performance Evaluation in
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NYENRODE BUSINESS UNIVERSITEIT Rela
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Table of Contents Preface 1 General
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Preface Why do people make things h
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Page 44 and 45: 2.3. SAMPLE AND MEASUREMENT 35 Emph
Page 46 and 47: 2.4. ANALYSES 37 2.4 Analyses This
Page 48 and 49: 2.4. ANALYSES 39 Table 2.8: RPE use
Page 50 and 51: 2.4. ANALYSES 41 2.4.2 Correlations
Page 52 and 53: 2.4. ANALYSES 43 Concerning the con
Page 54 and 55: 2.4. ANALYSES 45 Table 2.13: Result
Page 56 and 57: 2.4. ANALYSES 47 Table 2.15: Summar
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Page 70 and 71: 3.1. INTRODUCTION 61 Holmstrom’s
Page 72 and 73: 3.2. DEVELOPMENT OF THE MODEL 63 3.
Page 74 and 75: 3.2. DEVELOPMENT OF THE MODEL 65 RP
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Page 86 and 87: 3.4. ANALYSES 77 Table 3.9: Pearson
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4.3. SAMPLE AND MEASUREMENT 101 Tab
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4.4. ANALYSES 103 Table 4.8: Items
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4.4. ANALYSES 105 RPE use ✻ Posit
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4.4. ANALYSES 107 The model does sh
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4.4. ANALYSES 109 RPE and RFMO. Mor
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4.4. ANALYSES 111 room for manageri
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4.5. CONCLUSIONS AND DISCUSSION 113
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4.5. CONCLUSIONS AND DISCUSSION 115
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Chapter 5 Conclusion 5.1 Summary, C
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5.1. SUMMARY, CONCLUSIONS AND DISCU
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5.2. IMPLICATIONS FOR PRACTICE 125
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5.3. LIMITATIONS AND SUGGESTIONS FO
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Appendix Overview of Questionnaire
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Q5 How often do the following thing
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Q14 When serving your clients, how
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Q23 Please indicate whether you agr
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Noise Q34 NOISE (primary measure) P
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References 1. Abernethy, M.A., Bouw
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26. Diamantopoulos, A. & Siguaw, J.
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52. Himmelberg, C.P. & Hubbard R.G.
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83. Towry, K. 2003. ‘Control in a
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148 beïnvloeden, veroorzaken ruis
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Biography Hilco van Elten (1979) ho
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