Performance metrics that entice agents to consider the long-term firm effect of their actions

Jan Bouwens

Chapter 12 in Research Handbook on Performance Measurement for Management Control, 2024, pp 226-246 from Edward Elgar Publishing

Abstract: To assure that decision makers make decisions that are consistent with attaining long-term (sustainability) objectives, it is imperative that employees are incited to consider the long-term effect of their decisions. In this chapter, I discuss whether the choice of performance metrics potentially affects the likelihood of agents to consider the long-term effects of their decisions. Some existing research would suggest that accounting return metrics - like residual income - and nonfinancial metrics may lead agents to redirect attention from the short- to the long-term effects of their actions. I observe potential avenues for future research. At this stage we know little of how firms prioritize in deciding what metrics to use, how many metrics to use or what weights they want to put on these metrics.

Keywords: Business and Management; Economics and Finance (search for similar items in EconPapers)
Date: 2024
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