Mismatch in the Design of Performance Measures: A Solution for Managing Conflicting Organisational Goals

By VG Sridharan, Jane Bui

This paper examines the economic rationale behind an unusual field study finding with the help of agency theory. Why would a firm evaluate employees on one measure but reward them on the basis of another conflicting measure? The paper adopts Yin’s (1994) scientific case study approach to identify practical reasons from a division of a single firm.

The analysis points to the firm’s inevitable need to control two potential opportunism sources namely, information-hiding and delaying (or ‘go-slow’) as the primary reasons for the deliberate design of such mismatching measures. Finally, the firm exploits the economic power of the customer satisfaction measure, whose subjectivity and informal design helps offset the negative effects of the goal conflict.

While the extant literature identifies two types of measurement mismatch, this paper documents the prevalence and management of a third type namely, deliberate design of mismatching measures for conflicting goals.

JAMARv13 1-Performance Measures