An International Meeting of the American Accounting Association American Accounting Association 2006 Annual Meeting August 6–9, 2006 Washington, D.C.

Ella Mae Matsumura
University of Wisconsin - Madison

Hung - Chao Yu
National Chengchi University

Sandra Vera - Muñoz
University of Notre Dame

Abstract: We conduct experiments to examine how SBU (strategic business unit) lifecycle stage and incentive contracts used in conjunction with a Balanced Scorecard (BSC) individually and jointly affect managers’ effort choices and performance. We use five incentive contracts, and two lifecycle stages (growth and mature). Across incentive contracts and the four BSC perspectives, growth-stage managers choose higher effort levels than mature-stage managers. BSC incentive contracts that directly tie managerial bonuses to the achievement of BSC performance measures induce managers to choose higher effort levels than do BSC incentive contracts with subjectively determined bonuses or bonuses not directly tied to the achievement of BSC measures. Lifecycle stage and incentive contract jointly affect managers’ overall performance. Finally, managers’ perceptions of whether the BSC performance measures are appropriately linked to their incentive contracts significantly affect their effort and performance.

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