Navigating Through the Noise: The Effect of Color-Coded Performance Feedback on Decision Making

Published in Contemporary Accounting Research, 2024

Many companies use color codes in their internal performance reports to highlight how current performance compares to performance in a previous period. We examine whether the use of color coding affects managers’ decision making in a resource allocation task. We argue that managers’ decision accuracy will be lower if they receive noisier feedback, but that this detrimental effect of noise can be mitigated through color coding. Using two experiments, we find evidence consistent with our theory. Managers who receive reports in which performance increases are color coded green and performance decreases are color coded red are less affected by noise than managers who receive feedback reports without color coding. Supplemental analyses suggest that color coding induces managers to process feedback in a more holistic manner, which reduces the adverse effect of noise on managers’ learning processes. Our findings have several important implications for research and practice.

Recommended citation: Cardinaels, E., Kramer, S., & Maas, V. (forthcoming). Navigating Through the Noise: The Effect of Color-Coded Performance Feedback on Decision Making. Contemporary Accounting Research.

Disturbing the quiet life? Competition and CEO incentives

Published in The Accounting Review, 2023

Although it is well understood that product market competition acts as a disciplining mechanism that reduces inefficiencies, our understanding of the implications for firms’ incentive design choices is still limited. We use a comprehensive new measure of competition and examine its effect on four major choices: CEO equity portfolio incentives, annual bonus plan incentives, choice of performance measures, and difficulty of financial performance targets. We find that competition reduces firm profits and total CEO compensation, including equity grants, which then also weakens portfolio incentives. Firms respond by adjusting annual bonus plans to restore incentives. Specifically, we find that competition goes together with stronger bonus plan incentives, more challenging annual performance targets, and a greater emphasis on long-term performance measures. Finally, we show that competition increases performance relative to annual bonus targets, which we interpret as evidence that CEOs work harder but get paid less in highly competitive environments.

Recommended citation: Kramer, S., & Matejka, M. (forthcoming). Disturbing the quiet life? Competition and CEO incentives. The Accounting Review.

Selective attention as a determinant of escalation bias in subjective performance evaluation judgments

Published in Behavioral Research in Accounting, 2020

We use an experiment to examine escalation bias in subjective performance evaluations. Participants assume the role of manager and evaluate the performance of an employee based on a balanced-scorecard-type performance report. We manipulate whether managers recommended positively or negatively about the evaluated employee’s promotion to his current position. Consistent with the presence of escalation bias, we find that managers give higher performance ratings to employees about whom they advised positively than to employees about whom they advised negatively. Using eye-tracking data, we investigate whether escalation bias arises because managers with different prior commitments toward the evaluated employee pay attention to different items in the scorecard. We find that evaluators’ prior recommendation does not affect what proportion of their visual attention is given to favorable…

Recommended citation: Kramer, S., & Maas, V. S. (2020). Selective attention as a determinant of escalation bias in subjective performance evaluation judgments. Behavioral Research in Accounting 32(1), 87-100. https://publications.aaahq.org/bria/article-abstract/32/1/87/6894/Selective-Attention-as-a-Determinant-of-Escalation?redirectedFrom=fulltext

Relative target setting and cooperation

Published in Journal of Accounting Research, 2019

A large stream of work on relative performance evaluation highlights the benefits of using information about peer performance in contracting. In contrast, the potential costs of discouraging cooperation among peers have received much less attention. The purpose of our study is to examine how the importance of cooperation affects the use of information about peer performance in target setting, also known as relative target setting. Specifically, we use data from an industrial services company where business unit managers need to share specialized equipment and staff with their peers to manage bottlenecks in their capacity. We construct several empirical proxies for the costs and benefits of information about peer performance and examine their effects on target setting. We find robust evidence that the sensitivity of target revisions to past peer performance is higher when peer group performance has greater …

Recommended citation: Holzhacker, M., Kramer, S., Matějka, M., & Hoffmeister, N. (2019). Relative target setting and cooperation. Journal of Accounting Research 57(1), 211-239. https://onlinelibrary.wiley.com/doi/full/10.1111/1475-679X.12244

Relative performance information, rank ordering and employee performance: A research note

Published in Management Accounting Research, 2016

We conduct a laboratory experiment to examine whether the provision of detailed relative performance information (i.e., information about the specific performance levels of peers) affects employee performance. We also investigate how – if at all – explicit ranking of performance levels affects how employees respond to relative performance information. Our hypotheses are developed based on insights about social comparisons and status incentives from the psychology and behavioral economics literature. The results of the experiment show that the provision of relative performance information increases employee performance, yet we find no additional effects of rank ordering. Specifically, average performance levels are similar in conditions in which relative performance figures are presented in random order, in best-to-worst order and in worst-to-best order.

Recommended citation: Kramer, S., Maas, V. S., & Van Rinsum, M. (2016). Relative performance information, rank ordering and employee performance: A research note. Management Accounting Research 33, 16-24. https://www.sciencedirect.com/science/article/pii/S1044500516300026

How control system design affects performance evaluation compression: The role of information accuracy and outcome transparency

Published in Accounting, Organizations and Society, 2016

Prior research has shown that managers tend to compress ratings when subjectively evaluating employees and that such compression can have negative organizational consequences. We reason that organizations can use the design of their control system to influence the personal costs and benefits associated with managers’ rating decisions and thus shape managers’ rating behavior. Based on findings from prior literature, we focus on the effects of two control system design elements: the accuracy of the information on which managers need to base their evaluations and the transparency about performance evaluation outcomes. We hypothesize that increasing information accuracy will increase the extent to which managers differentiate between stronger and weaker employees, but only when there is transparency about evaluation outcomes. Our experimental data support this hypothesis, and we discuss the …

Recommended citation: Bol, J. C., Kramer, S., & Maas, V. S. (2016). How control system design affects performance evaluation compression: The role of information accuracy and outcome transparency. Accounting, Organizations and Society 51, 64-73. https://www.sciencedirect.com/science/article/pii/S0361368216300010

Fairness perceptions of annual bonus payments: The effects of subjective performance measures and the achievement of bonus targets - Recipient of the David Solomons Prize for the best article in Management Accounting Research 2016

Published in Management Accounting Research, 2016

This study investigates how the weight on subjective performance measures and the achievement of bonus targets affect managers’ distributive and procedural fairness perceptions of annual bonus contracts. We argue that the effect of subjectivity on fairness perceptions follows an inverted U-shaped relationship, consistent with the idea that subjectivity increases fairness perceptions when the overall emphasis on subjective measures is relatively low, but that subjectivity decreases fairness perceptions when the overall emphasis on subjective measures is relatively high. We further argue that managers use bonus targets as referent standards, whose achievement increases perceptions of distributive fairness, but not of procedural fairness. We use a time-ordered cross-sectional survey study design to separate the measurement of ex ante contract characteristics from the measurement of actual bonus payments and …

Recommended citation: Voußem, L., Kramer, S., & Schäffer, U. (2016). Fairness perceptions of annual bonus payments: The effects of subjective performance measures and the achievement of bonus targets. Management Accounting Research 30, 32-46. https://www.sciencedirect.com/science/article/pii/S1044500515300019

How top-down and bottom-up budgeting affect budget slack and performance through social and economic exchange

Published in Abacus, 2014

This paper investigates the effects of a top‐down (TD) versus bottom‐up (BU) orientation in different stages of the budgetary target‐setting process on slack and managerial performance. We use social exchange theory to explain the outcomes of these alternative budgetary arrangements, and complement the traditional focus on budgetary participation in target setting with a process‐oriented perspective. We develop hypotheses predicting that TD and BU orientations in the subsequent stages of the budgeting process have different effects on managers’ exchange relationships with the firm, and their behavioural responses. Using survey evidence from German managers across 127 firms we find that a TD orientation in the issuance of guidelines enhances economic exchange and that a BU orientation in the development of the initial budget proposal enhances social exchange, which in turn are associated with …

Recommended citation: Kramer, S., & Hartmann, F. (2014). How top-down and bottom-up budgeting affect budget slack and performance through social and economic exchange. Abacus 50(3), 314-340. https://onlinelibrary.wiley.com/doi/full/10.1111/abac.12032

Peer performance and budgetary targets

Published in Strategic Finance, 2021

Using past peer performance benchmarks can be an effective way to set annual performance targets, but it might discourage cooperation among business units…

Recommended citation: Holzhacker, M., Kramer, S., & Matejka, M. (2021). Peer performance and budgetary targets. Strategic Finance https://www.sfmagazine.com/articles/2021/december/peer-performance-and-budgetary-targets/?psso=true

Performance evaluations and control system design

Published in RSM Discovery - Management Knowledge, 2017

The accuracy of information available to managers about an employee`s performance, combined with the transparency of performance evaluations based on that information, can help to motivate managers to reward good performance and highlight poor performance….

Recommended citation: Kramer, S. (2017). Performance evaluations and control system design. RSM Discovery - Management Knowledge 29 (1), 10-11. https://repub.eur.nl/pub/98612/p10-11-PerformanceEvaluation-SKramer.pdf

The fairness perception of bonus payment allocations

Published in RSM Discovery - Management Knowledge, 2015

It is difficult to overestimate the importance of fairness in the link- ing of individual and collective effort to remuneration in a com- mercial enterprise. Arguably just as important is the perception of fairness on the part of the individual being remunerated…

Recommended citation: Kramer, S. (2015). The fairness perception of bonus payment allocations. RSM Discovery - Management Knowledge 24 (4), 15-16. https://pure-accept.eur.nl/ws/portalfiles/portal/47634872/p15-16-RSMDiscovery24.pdf

Can neuroscience inform management accountants?

Published in Financial Management, 2012

It may sound incredible to management accountants, but we are on the brink of a revolution in the science of economics and business. While economics and business are beginning to recognize the advantages that neuroscientific evidence brings to understanding the behaviour of people in firms and markets, our pilot study into the management accounting prospects of neuroscience to enrich and validate its role in organizations indicates that its potential contribution to management accounting knowledge could be huge…

Recommended citation: Bosman, C., Dalla Via, N., Hartmann, F., Kramer, S., Slapnicar, S. (2012). Can neuroscience inform management accountants? Financial Management. https://www.researchgate.net/publication/281122343_Can_neuroscience_inform_management_accountants

Rechnungslegungsforschung in deutschsprachigen wissenschaftlichen Zeitschriften. Eine Publikationsanalyse

Published in Die Betriebswirtschaft, 2010

Der Beitrag analysiert die Entwicklung der Rechnungslegungsforschung in vier führenden deutschsprachigen wissenschaftlichen Zeitschriften im Zeitraum von 1949 bis 2007…

Recommended citation: Perrey, E., Schaeffer, U., Kramer, S. (2010). Rechnungslegungsforschung in deutschsprachigen wissenschaftlichen Zeitschriften. Eine Publikationsanalyse. Die Betriebswirtschaft 70(6), 481-494. https://www.researchgate.net/publication/264057339_Rechnungslegungsforschung_in_deutschsprachigen_wissenschaftlichen_Zeitschriften_Eine_Publikationsanalyse

Operative Planung. Funktionen, Umsetzung und Einflussfaktoren

Published in Die Betriebswirtschaft, 2009

Recommended citation: Weber, J., Nevries, P., Breiter, D., Jeschonowski, Kramer, S. (2009). Operative Planung. Funktionen, Umsetzung und Einflussfaktoren. Schriftenreihe Advanced Controlling, Wiley, Weinheim.

Experimentelle Erkenntnisse zu menschlichem Verhalten in Budgetverhandlungen

Published in Zeitschrift für Controlling & Management , 2009

Die Budgetierungspraxis wird seit Jahren kritisiert und kaum ein Unternehmen kommt umhin, diesen zentralen Steuerungsprozess immer wieder zu adjustieren…

Recommended citation: Schaeffer, U., Kramer, S. (2010). Experimentelle Erkenntnisse zu menschlichem Verhalten in Budgetverhandlungen. Zeitschrift für Controlling & Management 53(4), 254-256. https://www.researchgate.net/publication/257772994_Experimentelle_Erkenntnisse_zu_menschlichem_Verhalten_in_Budgetverhandlungen