Motivationg Behavior in Management Accounting and Control Systems

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Chapter 10 Motivationg Behavior in Management
Accounting and Control Systems
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Chapter Objectives To be able to 1. Discuss
the four key behavioral considerations in MACS
design 2. Explain the human resources model of
management 3. Discuss task and results control
systems 4. Apply the ethical control framework to
decisions 5. Understand the balanced scorecard
and its applications 6. Discuss the links between
different incentive systems and performance
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Chapter 9 Technical aspects of MACS
design using benchmarking and best
practice. Chapter 10 Behavioral
characteristics of MACS design including
human motivation.
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The four key-behavioral considerations in a MACS
design 1. Embedding the organizations ethical
code of conduct into MACS design. 2. Using a
mix of short- and long-term qualitative and
quantitative performance measures (or the
balanced scorecard approach). 3. Empowering
employees to be involved in decision making and
MACS design. 4. Developing and appropriate
incentive system to reward performance.
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The Human Resource Management Model of
Motivation The scientific management school A
management movement with the underlying
philosophy that most people find work
objectionable, that people care little for making
decisions or showing creativity on the job, and
that money is the driving force behind
performance. Human relations movement A
managerial movement that recognizes that people
have needs well beyond performing a simple
repetitive task at work and that financial
compensation is only one aspect of what workers
desire. Human resources model of motivation A
more contemporary managerial view that introduces
a high level of employee responsibility for and
participation in decisions in the work
environment.
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The Organizations Ethical Code of Conduct and
MACS Design, page 1 of 5 Ethical control
system A management control system based on
ethics used to promote ethical decision making.
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The Organizations Ethical Code of Conduct and
MACS Design, page 2 of 5 The elements of an
effective ethical control system (1) A statement
of the organizations values and code of ethics
written in practical terms, along with examples
so that the organizations employees can relate
the statement to their individual jobs. (2) A
clear statement of the employees ethical
responsibilities for every job description and a
specific review of the employees ethical
performance as part of every performance
review. (3) Adequate training to help employees
identify ethical dilemmas in practice and learn
how to deal with those they can reasonably
expect to face. (4) Evidence that senior
management expects organization members to adhere
to its code of ethics. This means that
management must - Provide a statement of the
consequences of violating the organizations code
of ethics. - Establish a means of dealing with
violations of the organizations code of ethics
promptly, ruthlessly and consistently with
the statement of consequences. - Provide visible
support of ethical decision making at every
opportunity. - Provide a private line of
communication from employees directly to persons
at a very high organizational
level. (5) Evidence that employees can make
ethical decisions or report violations of the
organizations states ethics without fear of
reprisals from superiors, subordinates og peers
int the organization. (6) An ongoing internal
audit of the efficacy of the organizations
ethical control system.
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The Organizations Ethical Code of Conduct and
MACS Design, page 3 of 5 The Wall Street Journal
Workplace-Ethics Quiz (In Practice, page 401 and
402) How to resolve ethical issues Exhibit
10-1 Decision Model for Resolving Ethical
Issues Motivation and goal congruence Goal
congruence The outcome when managers and
employees goals are aligned with
organizational goals (promotions, financial
bonuses, advancing careers).
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• The Organizations Ethical Code of Conduct and
  MACS Design, page 4 of 5
• Behavioral Control Models
• Task Control The process of developing standard
  procedures that employees are told to follow.
• Two categories
• Preventive control An approach to control that
  focuses on
• preventing an
  undesired event.
• Monitoring Inspecting the work or
  behavior of employees while they are
  perming a task.
• (this call may be monitored to ensure
  quality control)

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The Organizations Ethical Code of Conduct and
MACS Design, page 5 of 5 Behavioral Control
Models Results Control The process of hiring
qualified pople who understand the
organi- zations objectives, telling them to do
whatever they think best to help the
organization achieve its objectives and using the
control system to evaluate the resulting
performance thereby assessing how well they
have done. Effectiveness in Results
Control (1) Organization members understand
the organizations objectives and their
contribution to those objectives. (2)
Organization members have the knowledge and skill
to respond to changing situations by
taking corrective actions and making
sound decisions. (3) The performance
measurement system is designed to assess
individual contributions so that an
individual can be motivated to take
action and make decisions that reflect their own
and the organizations best interests.
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Using a Mix of Performance Measures - The
Balanced Scorecard approach The need for
multiple measures of performance Examples of
riscs having only one or very few performance
measures Gaming the performance indicator
An activity in which an employee may engage in
dysfunctional behavior to achieve a single
goal. Data falsification The process of
knowingly altering company data in ones favor.
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Using a Mix of Performance Measures - The
Balanced Scorecard approach Using a mix of
financial/nonfinancial and quantitative/qualitativ
e performance measures Examples
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• Using a Mix of Performance Measures - The
  Balanced Scorecard approach
• The Balanced Scorecard, page 1 of 4
• Definition A systematic performance measurement
  system that trans-
• lates an organizations strategy into clear
  objectives, measures, targets, and initiatives
  organized by four perspectives
• External financial perspective
• Customer perspective
• Internal business process perspective
• Learning and growth perspective

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Using a Mix of Performance Measures - The
Balanced Scorecard approach The Balanced
Scorecard, page 2 of 4 External financial
perspective While considered traditional,
financial performance measures are still used to
determine whether an organizations strategy and
objectives are affecting bottom-line financial
performance. This perspective continues to be
critical for both internal and external
stakeholders. Examples of financial measures
include operating income, return-on-capital
employed and economic value added. Customer
perspective The customer perspective measures
the business units performance in targeted
customer and market segment. The customer
perspective typically uses customer outcome
measures such as customer profitability, customer
retention, customer satisfaction and market share.
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Using a Mix of Performance Measures - The
Balanced Scorecard approach The Balanced
Scorecard, page 3 of 4 Internal business process
perspective The internal business process
perspective focuses on those processes that will
increase value to customers and lower costs for
improved performance. Using analyses that cut
across the entire value chain, the internal
business process perspective plays two roles.
First, measures are developed to assess and
improve existing processes. Second, the approach
is used to develop new processes and new measures
that will affect customer satisfaction and
financial performance.
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Using a Mix of Performance Measures - The
Balanced Scorecard approach The Balanced
Scorecard, page 4 of 4 Learning and growth
perspective The focus on the learning and growth
perspective is to address the thrree sources of
organizational learning and growth People,
systems and organizational procedures. Measures
for people include employee satisfaction and
retention, training and skill development.
Systems metrics determine whether information
systems are producing accurate, reliable and
consistent information that informs managers
about their customers and business processes.
Organizational metrics of success with
appropriate reward systems. The Balanced
Scorecard - Illustration Exhibit 10-3 The
Balanced Scorecard - Example Exhibit 10-4
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• Empowering employees to be involved in MACS
  design
• Involvement in MACS design
• Motivate employees by participating in decision
  making, which gives
• them greater feelings of morale and job
  satisfaction.
• Ensuring that employees understand the
  information they are
• using and generating.

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• Developing Appropriate Incentive Systems to
  Reward Performance
• Intrinsic rewards Those rewards that come from
  within an individual and reflect satisfaction
  from doing the job and the opportunities for
  growth that the job provides. (example
  volunteers).
• Extrinsic rewards Motivating desired behavior by
  providing an explicit, usually financial,
  reward

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• Developing Appropriate Incentive Systems to
  Reward Performance
• Extrinsic Rewards based on Performance, page 1 of
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• Incentive compensation systems
• Reward system that provides monetary (extrinsic)
  rewards based on measured results. Also called
  pay-for-performance systems. Is paid when
  achieving or exceeding measured performance.
• Measured performance could be
• absolute performance
• performance relative to some plan
• performance relative to that of some comparable
  group

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• Developing Appropriate Incentive Systems to
  Reward Performance
• Extrinsic Rewards based on Performance, page 2 of
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• Examples of absolute performance
• The number of acceptable quality units produced
• The organizations results
• The organizations share price performance
• Examples of relative performance
• The ability to exceed a performance target level
• The amount of a bonus pool
• The degree to which performance exceeds the
  average performance of a
• comparable group

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Developing Appropriate Incentive Systems to
Reward Performance Extrinsic Rewards based on
Performance, page 3 of 8 Conditions mandatory
to be in place in order to motivate desired
performance 1. The employees must understand
their jobs and the reward system and believe
that it measures what they control and contribute
to the organization. 2. Measuring on input or
output? Ideally output rewards are what
contribute to the organizations succes. In
certain situations input are measured (for
example by hours worked). 3. The
organizations critical succes factors should be
reflected. Must cover all relevant critical
succes factors (balanced).
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Developing Appropriate Incentive Systems to
Reward Performance Extrinsic Rewards based on
Performance, page 4 of 8 Conditions mandatory
to be in place in order to motivate desired
performance 4. Setting clear standards that
employees consider fair. 5. Calibrated. Should
set a clear relationship between performance and
outcome. 6. When it is critical that employees
coordinate decision making and other activi-
ties with other employees, the reward system
should reward group rather than individual.
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• Developing Appropriate Incentive Systems to
  Reward Performance
• Extrinsic Rewards based on Performance, page 5 of
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• Conditions favoring incentive compensation
• Authority to make decisions
• Incentive compensation and employee
  responsibility
• Must focus primarily on outcomes that the
  employee controls or influences.
• Must reflect the nature of their
  responsibilities in the organization.
• Must reflect the time frame related to the
  nature of the employees work tasks.

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Developing Appropriate Incentive Systems to
Reward Performance Extrinsic Rewards based on
Performance, page 6 of 8 Types of incentive
compensation plans Compensations plans can be
divided into two categories 1. Those that rely
on internal measures. 2. Those that rely on
performance of the organizations share
price. Compensations plans relating to internal
measures Cash bonus A payment method that pays
cash based on som measured performance. Also
called lump-sum reward, pay for performance,
and merit pay.
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Developing Appropriate Incentive Systems to
Reward Performance Extrinsic Rewards based on
Performance, page 7 of 8 Compensations plans
relating to internal measures, continued Pay-for
-performance Reward system that provides monetary
rewards based system on measured results. Also
called incentive compensation Profit sharing A
cash bonus calculated as a percentage of an
organization units reported profit a group
incentive compensation plan focused on short
term performances. Gainsharing A system for
distributing cash bonuses from a pool when the
total amount available is a function fo
performance reative to some target. Is a group
incentive. Improshare Improved productivity
sharing. A gainsharing program that
determines its bonus pool by computing the
difference between the target level of labor
cost given the level of production and the
actual labor cost.
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Developing Appropriate Incentive Systems to
Reward Performance Extrinsic Rewards based on
Performance, page 8 of 8 Compensations plans
relating to external measures Stock
option The right to purchase a unit of the
organizations stock at a specified price,
called the option price.