The purpose of this research is twofold. Firstly, it examines the
relationship between the use of financial and non-financial performance
measures in executives’ annual incentive systems and firm performance.
Secondly, it looks at the extent to which this relationship is influenced by
five different organisational contingencies (business risk, ownership
structure, organisational culture, the quality of the performance measures
used in executives’ annual incentives and the effectiveness of the
executives’ reward system).
Agency theory and contingency theory are used to develop the
theoretical framework that underpins this study. The research design is
based on survey and archival data from 132 private and publicly quoted
organisations based in the UK. Data is studied using multivariate analysis,
in particular, multiple regression analysis with main and interaction effects.
Contrary to expectations, the study finds that the relationship between
the use of financial and non-financial performance measures in executives’
annual incentives and economic firm performance (measured by return on
assets and sales annual growth) is negative rather than positive. However,
this relationship is not universalistic. Results suggest that when
organisations operate in high or low business risk environments or when
organisations have clan or adhocracy cultural values the use of multi-criteria
performance measures in executives’ annual incentives is beneficial as it
facilitates the achievement of business goals. Results also suggest that
ownership structure, the quality of performance measures and the
effectiveness of executives’ reward systems are organisational contingencies
that do not influence the performance impact of using multi-criteria
performance measures in executives’ annual incentive systems.
This thesis contributes to the management literature; in particular, to
the literature that looks at the use of non-financial performance measures in
management control systems. It contributes to agency-based research by
providing empirical evidence that refutes some of its premises regarding the
use of multi-criteria performance measures in incentive systems. This thesis
also contributes to contingency-based research as it supports the notion that
there is no universally appropriate management control system –in this case,
the executive incentive system– which applies equally to all organisations in
all circumstances