Determining Performance Targets

Posted: 4 Aug 2015

See all articles by Henri C. Dekker

Henri C. Dekker

Vrije Universiteit Amsterdam

Tom Groot

VU University Amsterdam - Amsterdam Research Center in Accounting

Martijn Schoute

VU University Amsterdam - Department of Accounting

Date Written: August 3, 2012

Abstract

Performance targets direct organizational participants toward firm strategy, provide guidance for allocating effort, and induce effort toward performance goals. Key aspects of the setting of performance targets are how specific they should be and at which levels they should be set. We develop a structural model that aims to explain the specificity of targets set for subordinate managers and the information sources used to set target levels for defined performance dimensions, which sources include past performance, future planning, and benchmarking information. An analysis of 364 survey responses provides support for our expectations that both target specificity and the use of information sources to determine target levels vary with firms’ environmental dynamism and task uncertainty, and with the intensity of financial incentives provided to subordinate managers. In addition, the results show that in response to these contextual variables, firms typically combine information sources to determine adequate target levels, instead of treating them as substitutes.

Keywords: performance targets; target setting; target specificity

Suggested Citation

Dekker, Henri C. and Groot, Tom and Schoute, Martijn, Determining Performance Targets (August 3, 2012). Behavioral Research in Accounting, Vol. 24, No. 2, 2012, Available at SSRN: https://ssrn.com/abstract=2639080

Henri C. Dekker (Contact Author)

Vrije Universiteit Amsterdam ( email )

De Boelelaan 1105
Amsterdam, 1081 HV
Netherlands

Tom Groot

VU University Amsterdam - Amsterdam Research Center in Accounting ( email )

De Boelelaan 1105
1081 HV Amsterdam
Netherlands

Martijn Schoute

VU University Amsterdam - Department of Accounting ( email )

De Boelelaan 1105, room 7A-75
Amsterdam, 1081 HV
Netherlands
+31 20 598 2328 (Phone)
+31 20 598 9870 (Fax)

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