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Paying People to Lie: The Truth About the Budgeting Process
Abstract
This paper analyzes the counterproductive effects associated with using budgets or targets in an organisation's performance measurement and compensation systems. Paying people on the basis of how their performance relates to a budget or target causes people to game the system and in doing so to destroy value in two main ways: (a) both superiors and subordinates lie in the formulation of budgets and, therefore, gut the budgeting process of the critical unbiased information that is required to coordinate the activities of disparate parts of an organisation, and (b) they game the realisation of the budgets or targets and in doing so destroy value for their organisations. Although most managers and analysts understand that budget gaming is widespread, few understand the huge costs it imposes on organisations and how to lower them.
My purpose in this paper is to explain exactly how this happens and how managers and firms can stop this counter‐productive cycle. The key lies not in destroying the budgeting systems, but in changing the way organisations pay people. In particular to stop this highly counter‐productive behaviour we must stop using budgets or targets in the compensation formulas and promotion systems for employees and managers. This means taking all kinks, discontinuities and non‐linearities out of the pay‐for‐performance profile of each employee and manager. Such purely linear compensation formulas provide no incentives to lie, or to withhold and distort information, or to game the system.
While the evidence on the costs of these systems is not extensive, I believe that solving the problems could easily result in large productivity and value increases – sometimes as much as 50–100% improvements in productivity. I believe the less intensive reliance on such budget/target systems is an important cause of the increased productivity of entrepreneurial and LBO firms. Moreover, eliminating budget/target‐induced gaming from the management system will eliminate one of the major forces leading to the general loss of integrity in organisations. People are taught to lie in these pervasive budgeting systems because if they tell the truth they often get punished and if they lie they get rewarded. Once taught to lie in this system people generally cannot help but extend that behaviour to all sorts of other relationships in the organisation.
... som minimum opnå en gevinst på ( Endelig giver den stykvis lineaer incitamentsfunktion anledning til en saerlig problemstilling, hvis nogle af linjestykkernes haeldningskoefficient er 0, dvs. linjestykkerne er vandrette (Jensen 2001(Jensen , 2003. Problemet opstår, hvis et museum for et eller flere af kriterierne er placeret så langt fra et trinskift, at det i enkelte år ikke har udsigt til at skifte trin. ...
... Et lige så vaesentligt problem, som Jensen (2001Jensen ( , 2003 påpeger, er imidlertid, at modellen kan games, når praestationer kan flyttes mellem perioderne. Det er kun i begraenset omfang muligt med brugere, medmindre registreringerne decideret manipuleres. ...
En faelles tilskudsmodel for museer med forskellige mål Når ressourcerne er begraensede i den offentlige sektor, skal der prioriteres. Selvom der f.eks. er udbredt enighed om, at Danmark har brug for et forsvar, at der skal stilles gratis undervisning til rådighed, og at en vaerdig aeldrepleje skal prioriteres, så findes der ikke alment accepterede principper for, hvor mange penge der skal bruges på enkelte opgaver eller opgavernes relative vig-tighed. Sådanne prioriteringer er grundlaeggende vaerdibaserede og politiske, ikke mindst når meget forskelligartede opgaver sammenlignes. Når man inden for konkrete politikområder skal fordele økonomiske ressour-cer mellem de enkelte skoler, universiteter, museer mv., er det heller ikke let at prioritere. Det bliver dog muligt at foretage mere eller mindre praecise vurde-ringer af, hvilke ressourcer der er nødvendige, når opgaverne skal løses. Dette såkaldte udgiftsbehov (Smith, 2007) skal afstemmes med omkostningsstruk-turen, når ressourcer fordeles i praksis, hvilket ofte sker ved anvendelse af en såkaldt tildelingsmodel (Bukh og Christensen, 2020a). Tildelingsmodeller fastlaegger finansieringen ved hjaelp af kvantitative indikatorer og er ikke per-fekte løsninger. Men de kan vaere bedre end alternativer, hvor fordelingen af ressourcerne sker alene ved en politisk forhandling, herunder politiske byt-tehandler, eller fastlaegges som en videreførelse af sidste års budget (Smith, 2007: afsnit 1.5). I 2023 fik de 97 statsanerkendte danske museer et statstilskud på omkring 450 mio. kr. Fordelingen mellem museerne hviler i princippet på en raekke politi-ske beslutninger, men der er store historiskbetingede forskelle i størrelsen af museernes statstilskud. Blandt andet har amternes nedlaeggelse med struk-Denne artikel analyserer incitamentsstrukturen i finansieringsmodellen for danske statsanerkendte museer, som blev foreslået af Arbejdsgruppen for Museumsreform i november 2023. Artiklen prae-senterer elementerne og byggestenene i tildelings-modeller. Den fremhaever desuden de dilemmaer, disse modeller kan skabe, hvilket potentielt medfører spaending mellem faglige overvejelser og økono-miske incitamenter. Analysen er forankret i et funk-tionalistisk perspektiv, hvor modellers forventede konsekvenser vurderes på baggrund af teoretisk og empirisk viden. Gennem en kritisk vurdering af den foreslåede finansieringsmodel diskuteres de poten-tielle risici ved forenklede praestationsmål og uhen-sigtsmaessige incitamentsstrukturer. Artiklen bidra-ger til forståelsen af, hvordan finansieringsmodeller påvirker museernes drift og understreger behovet for velovervejede incitamentsmekanismer. På vej mod en museumsreform: En analyse af den foreslåede finansieringsmodel
... Clear, fully enforced property rights and transparent representations of ownership are other forms of standards that reduce the costs of transactions further by removing sources of unpredictable variation in social factors (Ashworth, 2004;Beges et al., 2011;Birch, 2008;Lengnick-Hall et al., 2004). When objective measurement is available in the context of enforceable property rights and proof of ownership, economic transactions can be contracted most efficiently in the marketplace (Baker et al., 2001;Jensen, 2003). The emergence of objective measures of individual abilities, motivations, and health, along with service outcomes, organizational performance and environmental quality, present a wide array of new potential applications of this principle. ...
... Linear performance measures are recommended as essential to outcome-based budgeting (Jensen, 2003), and will require structurally invariant units capable of mediating comparisons in this way. Without instruments mediating meaningfully comparable relationships, it is impossible to effectively link science and the economy by coordinating capital budgeting decisions. ...
We argue that a goal of measurement is general objectivity: point estimates of a person’s measure (height, temperature, and reader ability) should be independent of the instrument and independent of the sample in which the person happens to find herself. In contrast, Rasch’s concept of specific objectivity requires only differences (i.e., comparisons) between person measures to be independent of the instrument. We present a canonical case in which there is no overlap between instruments and persons: each person is measured by a unique instrument. We then show what is required to estimate measures in this degenerate case. The canonical case encourages a simplification and reconceptualization of validity and reliability. Not surprisingly, this reconceptualization looks a lot like the way physicists and chemometricians think about validity and measurement error. We animate this presentation with a technology that blurs the distinction between instruction, assessment, and generally objective measurement of reader ability. We encourage adaptation of this model to health outcomes measurement.
... Clear, fully enforced property rights and transparent representations of ownership are other forms of standards that reduce the costs of transactions further by removing sources of unpredictable variation in social factors (Ashworth, 2004;Beges et al., 2011;Birch, 2008;Lengnick-Hall et al., 2004). When objective measurement is available in the context of enforceable property rights and proof of ownership, economic transactions can be contracted most efficiently in the marketplace (Baker et al., 2001;Jensen, 2003). The emergence of objective measures of individual abilities, motivations, and health, along with service outcomes, organizational performance and environmental quality, present a wide array of new potential applications of this principle. ...
... Linear performance measures are recommended as essential to outcome-based budgeting (Jensen, 2003), and will require structurally invariant units capable of mediating comparisons in this way. Without instruments mediating meaningfully comparable relationships, it is impossible to effectively link science and the economy by coordinating capital budgeting decisions. ...
... Clear, fully enforced property rights and transparent representations of ownership are other forms of standards that reduce the costs of transactions further by removing sources of unpredictable variation in social factors (Ashworth, 2004;Beges et al., 2011;Birch, 2008;Lengnick-Hall et al., 2004). When objective measurement is available in the context of enforceable property rights and proof of ownership, economic transactions can be contracted most efficiently in the marketplace (Baker et al., 2001;Jensen, 2003). The emergence of objective measures of individual abilities, motivations, and health, along with service outcomes, organizational performance and environmental quality, present a wide array of new potential applications of this principle. ...
... Linear performance measures are recommended as essential to outcome-based budgeting (Jensen, 2003), and will require structurally invariant units capable of mediating comparisons in this way. Without instruments mediating meaningfully comparable relationships, it is impossible to effectively link science and the economy by coordinating capital budgeting decisions. ...
In an argument whereby, “… individual-centered statistical techniques require models in which each individual is characterized separately and from which, given adequate data, the individual parameters can be estimated”.
... Clear, fully enforced property rights and transparent representations of ownership are other forms of standards that reduce the costs of transactions further by removing sources of unpredictable variation in social factors (Ashworth, 2004;Beges et al., 2011;Birch, 2008;Lengnick-Hall et al., 2004). When objective measurement is available in the context of enforceable property rights and proof of ownership, economic transactions can be contracted most efficiently in the marketplace (Baker et al., 2001;Jensen, 2003). The emergence of objective measures of individual abilities, motivations, and health, along with service outcomes, organizational performance and environmental quality, present a wide array of new potential applications of this principle. ...
... Linear performance measures are recommended as essential to outcome-based budgeting (Jensen, 2003), and will require structurally invariant units capable of mediating comparisons in this way. Without instruments mediating meaningfully comparable relationships, it is impossible to effectively link science and the economy by coordinating capital budgeting decisions. ...
The field of career education measurement is in disarray. Evidence mounts that today’s career education instruments are verbal ability measures in disguise. A plethora of trait names such as career maturity, career development, career planning, career awareness, and career decision making have, in the last decade, appeared as labels to scales comprised of multiple choice items. Many of these scales appear to be measuring similar underlying traits and certainly the labels have a similar sound or “jingle” to them. Other scale names are attached to clusters of items that appear to measure different traits and at first glance appear deserving of their unique trait names, e.g., occupational information, resources for exploration, work conditions, personal economics. The items of these scales look different and the labels correspondingly are dissimilar or have a different “jangle” to them.
... Clear, fully enforced property rights and transparent representations of ownership are other forms of standards that reduce the costs of transactions further by removing sources of unpredictable variation in social factors (Ashworth, 2004;Beges et al., 2011;Birch, 2008;Lengnick-Hall et al., 2004). When objective measurement is available in the context of enforceable property rights and proof of ownership, economic transactions can be contracted most efficiently in the marketplace (Baker et al., 2001;Jensen, 2003). The emergence of objective measures of individual abilities, motivations, and health, along with service outcomes, organizational performance and environmental quality, present a wide array of new potential applications of this principle. ...
... Linear performance measures are recommended as essential to outcome-based budgeting (Jensen, 2003), and will require structurally invariant units capable of mediating comparisons in this way. Without instruments mediating meaningfully comparable relationships, it is impossible to effectively link science and the economy by coordinating capital budgeting decisions. ...
Growth in reading ability varies across individuals in terms of starting points, velocities, and decelerations. Reading assessments vary in the texts they include, the questions asked about those texts, and in the way responses are scored. Complex conceptual and operational challenges must be addressed if we are to coherently assess reading ability, so that learning outcomes are comparable within students over time, across classrooms, and across formative, interim, and accountability assessments. A philosophical and historical context in which to situate the problems emerges via analogies from scientific, aesthetic, and democratic values. In a work now over 100 years old, Cook's study of the geometry of proportions in art, architecture, and nature focuses more on individual variation than on average general patterns. Cook anticipates the point made by Kuhn and Rasch that the goal of research is the discovery of anomalies—not the discovery of scientific laws. Bluecher extends Cook’s points by drawing an analogy between the beauty of individual variations in the Parthenon’s pillars and the democratic resilience of unique citizen soldiers in Pericles’ Athenian army. Lessons for how to approach reading measurement follow from the beauty and strength of stochastically integrated variations and uniformities in architectural, natural, and democratic principles.
... Clear, fully enforced property rights and transparent representations of ownership are other forms of standards that reduce the costs of transactions further by removing sources of unpredictable variation in social factors (Ashworth, 2004;Beges et al., 2011;Birch, 2008;Lengnick-Hall et al., 2004). When objective measurement is available in the context of enforceable property rights and proof of ownership, economic transactions can be contracted most efficiently in the marketplace (Baker et al., 2001;Jensen, 2003). The emergence of objective measures of individual abilities, motivations, and health, along with service outcomes, organizational performance and environmental quality, present a wide array of new potential applications of this principle. ...
... Linear performance measures are recommended as essential to outcome-based budgeting (Jensen, 2003), and will require structurally invariant units capable of mediating comparisons in this way. Without instruments mediating meaningfully comparable relationships, it is impossible to effectively link science and the economy by coordinating capital budgeting decisions. ...
One must provide information about the conditions under which [the measurement outcome] would change or be different. It follows that the generalizations that figure in explanations [of measurement outcomes] must be change-relating… Both explainers [e.g., person parameters and item parameters] and what is explained [measurement outcomes] must be capable of change, and such changes must be connected in the right way (Woodward, 2003). Rasch’s unidimensional models for measurement tell us how to connect object measures, instrument calibrations, and measurement outcomes. Substantive theory tells us what interventions or changes to the instrument must offset a change to the measure for an object of measurement to hold the measurement outcome constant. Integrating a Rasch model with a substantive theory dictates the form and substance of permissible conjoint interventions. Rasch analysis absent construct theory and an associated specification equation is a black box in which understanding may be more illusory than not. The mere availability of numbers to analyze and statistics to report is often accepted as methodologically satisfactory in the social sciences, but falls far short of what is needed for a science.
... Clear, fully enforced property rights and transparent representations of ownership are other forms of standards that reduce the costs of transactions further by removing sources of unpredictable variation in social factors (Ashworth, 2004;Beges et al., 2011;Birch, 2008;Lengnick-Hall et al., 2004). When objective measurement is available in the context of enforceable property rights and proof of ownership, economic transactions can be contracted most efficiently in the marketplace (Baker et al., 2001;Jensen, 2003). The emergence of objective measures of individual abilities, motivations, and health, along with service outcomes, organizational performance and environmental quality, present a wide array of new potential applications of this principle. ...
... Linear performance measures are recommended as essential to outcome-based budgeting (Jensen, 2003), and will require structurally invariant units capable of mediating comparisons in this way. Without instruments mediating meaningfully comparable relationships, it is impossible to effectively link science and the economy by coordinating capital budgeting decisions. ...
A metrological infrastructure for the social, behavioral, and economic sciences has foundational and transformative potentials relating to education, health care, human and natural resource management, organizational performance assessment, and the economy at large. The traceability of universally uniform metrics to reference standard metrics is a taken-for-granted essential component of the infrastructure of the natural sciences and engineering. Advanced measurement methods and models capable of supporting similar metrics, standards, and traceability for intangible forms of capital have been available for decades but have yet to be implemented in ways that take full advantage of their capacities. The economy, education, health care reform, and the environment are all now top national priorities. There is nothing more essential to succeeding in these efforts than the quality of the measures we develop and deploy. Even so, few, if any, of these efforts are taking systematic advantage of longstanding, proven measurement technologies that may be crucial to the scientific and economic successes we seek. Bringing these technologies to the attention of the academic and business communities for use, further testing, and development in new directions is an area of critical national need.
... Clear, fully enforced property rights and transparent representations of ownership are other forms of standards that reduce the costs of transactions further by removing sources of unpredictable variation in social factors (Ashworth, 2004;Beges et al., 2011;Birch, 2008;Lengnick-Hall et al., 2004). When objective measurement is available in the context of enforceable property rights and proof of ownership, economic transactions can be contracted most efficiently in the marketplace (Baker et al., 2001;Jensen, 2003). The emergence of objective measures of individual abilities, motivations, and health, along with service outcomes, organizational performance and environmental quality, present a wide array of new potential applications of this principle. ...
... Linear performance measures are recommended as essential to outcome-based budgeting (Jensen, 2003), and will require structurally invariant units capable of mediating comparisons in this way. Without instruments mediating meaningfully comparable relationships, it is impossible to effectively link science and the economy by coordinating capital budgeting decisions. ...
There is nothing wrong with the NAEP reading exercises, the sampling design, or the NAEP Reading Proficiency Scale, these authors maintain. But adding a rich criterion-based frame of reference to the scale should yield an even more useful tool for shaping U.S. educational policy.
... Clear, fully enforced property rights and transparent representations of ownership are other forms of standards that reduce the costs of transactions further by removing sources of unpredictable variation in social factors (Ashworth, 2004;Beges et al., 2011;Birch, 2008;Lengnick-Hall et al., 2004). When objective measurement is available in the context of enforceable property rights and proof of ownership, economic transactions can be contracted most efficiently in the marketplace (Baker et al., 2001;Jensen, 2003). The emergence of objective measures of individual abilities, motivations, and health, along with service outcomes, organizational performance and environmental quality, present a wide array of new potential applications of this principle. ...
... Linear performance measures are recommended as essential to outcome-based budgeting (Jensen, 2003), and will require structurally invariant units capable of mediating comparisons in this way. Without instruments mediating meaningfully comparable relationships, it is impossible to effectively link science and the economy by coordinating capital budgeting decisions. ...
Measurement plays a vital role in the creation of markets, one that hinges on efficiencies gained via universal availability of precise and accurate information on product quantity and quality. Fulfilling the potential of these ideals requires close attention to measurement and the role of technology in science and the economy. The practical value of a strong theory of instrument calibration and metrological traceability stems from the capacity to mediate relationships in ways that align, coordinate, and integrate different firms’ expectations, investments, and capital budgeting decisions over the long term. Improvements in the measurement of reading ability exhibit patterns analogous to Moore’s Law, which has guided expectations in the micro-processor industry for almost 50 years. The state of the art in reading measurement serves as a model for generalizing the mediating role of instruments in making markets for other forms of intangible assets. These remarks provide only a preliminary sketch of the kinds of information that are both available and needed for making more efficient markets for human, social, and natural capital. Nevertheless, these initial steps project new horizons in the arts and sciences of measuring and managing intangible assets.
... Clear, fully enforced property rights and transparent representations of ownership are other forms of standards that reduce the costs of transactions further by removing sources of unpredictable variation in social factors (Ashworth, 2004;Beges et al., 2011;Birch, 2008;Lengnick-Hall et al., 2004). When objective measurement is available in the context of enforceable property rights and proof of ownership, economic transactions can be contracted most efficiently in the marketplace (Baker et al., 2001;Jensen, 2003). The emergence of objective measures of individual abilities, motivations, and health, along with service outcomes, organizational performance and environmental quality, present a wide array of new potential applications of this principle. ...
... Linear performance measures are recommended as essential to outcome-based budgeting (Jensen, 2003), and will require structurally invariant units capable of mediating comparisons in this way. Without instruments mediating meaningfully comparable relationships, it is impossible to effectively link science and the economy by coordinating capital budgeting decisions. ...
Implicit in the idea of measurement is the concept of objectivity. When we measure the temperatureTemperature using a thermometer, we assume that the measurement we obtain is not dependent on the conditions of measurement, such as which thermometer we use. Any functioning thermometer should give us the same reading of, for example, 75 °F. If one thermometer measured 40 °, another 250 and a third 150, then the lack of objectivity would invalidate the very idea of accurately measuring temperatureTemperature.
... Clear, fully enforced property rights and transparent representations of ownership are other forms of standards that reduce the costs of transactions further by removing sources of unpredictable variation in social factors (Ashworth, 2004;Beges et al., 2011;Birch, 2008;Lengnick-Hall et al., 2004). When objective measurement is available in the context of enforceable property rights and proof of ownership, economic transactions can be contracted most efficiently in the marketplace (Baker et al., 2001;Jensen, 2003). The emergence of objective measures of individual abilities, motivations, and health, along with service outcomes, organizational performance and environmental quality, present a wide array of new potential applications of this principle. ...
... Linear performance measures are recommended as essential to outcome-based budgeting (Jensen, 2003), and will require structurally invariant units capable of mediating comparisons in this way. Without instruments mediating meaningfully comparable relationships, it is impossible to effectively link science and the economy by coordinating capital budgeting decisions. ...
This paper presents and illustrates a novel methodology, construct-specification equations, for examining the construct validity of a psychological instrument. Whereas traditional approaches have focused on the study of between-person variation on the construct, the suggested methodology emphasizes study of the relationships between item characteristics and item scores. The major thesis of the construct-specification-equation approach is that until developers of a psychological instrument understand what item characteristics are determining the item difficulties, the understanding of what is being measured is unsatisfyingly primitive. This method is illustrated with data from the Knox Cube Test which purports to be a measure of visual attention and short-term memory.
... Clear, fully enforced property rights and transparent representations of ownership are other forms of standards that reduce the costs of transactions further by removing sources of unpredictable variation in social factors (Ashworth, 2004;Beges et al., 2011;Birch, 2008;Lengnick-Hall et al., 2004). When objective measurement is available in the context of enforceable property rights and proof of ownership, economic transactions can be contracted most efficiently in the marketplace (Baker et al., 2001;Jensen, 2003). The emergence of objective measures of individual abilities, motivations, and health, along with service outcomes, organizational performance and environmental quality, present a wide array of new potential applications of this principle. ...
... Linear performance measures are recommended as essential to outcome-based budgeting (Jensen, 2003), and will require structurally invariant units capable of mediating comparisons in this way. Without instruments mediating meaningfully comparable relationships, it is impossible to effectively link science and the economy by coordinating capital budgeting decisions. ...
The last 50 years of human and social science measurement theory and practice have witnessed a steady retreat from physical science as the canonical model. Humphry (2011) unapologetically draws on metrology and physical science analogies to reformulate the relationship between discrimination and the unit. This brief note focuses on why this reformulation is important and on how these ideas can improve measurement theory and practice.
... Clear, fully enforced property rights and transparent representations of ownership are other forms of standards that reduce the costs of transactions further by removing sources of unpredictable variation in social factors (Ashworth, 2004;Beges et al., 2011;Birch, 2008;Lengnick-Hall et al., 2004). When objective measurement is available in the context of enforceable property rights and proof of ownership, economic transactions can be contracted most efficiently in the marketplace (Baker et al., 2001;Jensen, 2003). The emergence of objective measures of individual abilities, motivations, and health, along with service outcomes, organizational performance and environmental quality, present a wide array of new potential applications of this principle. ...
... Linear performance measures are recommended as essential to outcome-based budgeting (Jensen, 2003), and will require structurally invariant units capable of mediating comparisons in this way. Without instruments mediating meaningfully comparable relationships, it is impossible to effectively link science and the economy by coordinating capital budgeting decisions. ...
Huge resources are invested in metrology and standards in the natural sciences, engineering, and across a wide range of commercial technologies. Significant positive returns of human, social, environmental, and economic value on these investments have been sustained for decades. Proven methods for calibrating test and survey instruments in linear units are readily available, as are data- and theory-based methods for equating those instruments to a shared unit. Using these methods, metrological traceability is obtained in a variety of commercially available elementary and secondary English and Spanish language reading education programs in the U.S., Canada, Mexico, and Australia. Given established historical patterns, widespread routine reproduction of predicted text-based and instructional effects expressed in a common language and shared frame of reference may lead to significant developments in theory and practice. Opportunities for systematic implementations of teacher-driven lean thinking and continuous quality improvement methods may be of particular interest and value.
... Clear, fully enforced property rights and transparent representations of ownership are other forms of standards that reduce the costs of transactions further by removing sources of unpredictable variation in social factors (Ashworth, 2004;Beges et al., 2011;Birch, 2008;Lengnick-Hall et al., 2004). When objective measurement is available in the context of enforceable property rights and proof of ownership, economic transactions can be contracted most efficiently in the marketplace (Baker et al., 2001;Jensen, 2003). The emergence of objective measures of individual abilities, motivations, and health, along with service outcomes, organizational performance and environmental quality, present a wide array of new potential applications of this principle. ...
... Linear performance measures are recommended as essential to outcome-based budgeting (Jensen, 2003), and will require structurally invariant units capable of mediating comparisons in this way. Without instruments mediating meaningfully comparable relationships, it is impossible to effectively link science and the economy by coordinating capital budgeting decisions. ...
In his classic paper entitled “The Unreasonable Effectiveness of Mathematics in the Natural Sciences,” Eugene Wigner addresses the question of why the language of Mathematics should prove so remarkably effective in the physical [natural] sciences. He marvels that “the enormous usefulness of mathematics in the natural sciences is something bordering on the mysterious and that there is no rational explanation for it.” We have been similarly struck by the outsized benefits that theory based instrument calibrations convey on the natural sciences, in contrast with the almost universal practice in the social sciences of using data to calibrate instrumentation.
... Clear, fully enforced property rights and transparent representations of ownership are other forms of standards that reduce the costs of transactions further by removing sources of unpredictable variation in social factors (Ashworth, 2004;Beges et al., 2011;Birch, 2008;Lengnick-Hall et al., 2004). When objective measurement is available in the context of enforceable property rights and proof of ownership, economic transactions can be contracted most efficiently in the marketplace (Baker et al., 2001;Jensen, 2003). The emergence of objective measures of individual abilities, motivations, and health, along with service outcomes, organizational performance and environmental quality, present a wide array of new potential applications of this principle. ...
... Linear performance measures are recommended as essential to outcome-based budgeting (Jensen, 2003), and will require structurally invariant units capable of mediating comparisons in this way. Without instruments mediating meaningfully comparable relationships, it is impossible to effectively link science and the economy by coordinating capital budgeting decisions. ...
Several concepts from Georg Rasch's last papers are discussed. The key one is comparison because Rasch considered the method of comparison fundamental to science. From the role of comparison stems scientific inference made operational by a properly developed frame of reference producing specific objectivity. The exact specifications Rasch outlined for making comparisons are explicated from quotes, and the role of causality derived from making comparisons is also examined. Understanding causality has implications for what can and cannot be produced via Rasch measurement. His simple examples were instructive, but the implications are far reaching upon first establishing the key role of comparison.
... Clear, fully enforced property rights and transparent representations of ownership are other forms of standards that reduce the costs of transactions further by removing sources of unpredictable variation in social factors (Ashworth, 2004;Beges et al., 2011;Birch, 2008;Lengnick-Hall et al., 2004). When objective measurement is available in the context of enforceable property rights and proof of ownership, economic transactions can be contracted most efficiently in the marketplace (Baker et al., 2001;Jensen, 2003). The emergence of objective measures of individual abilities, motivations, and health, along with service outcomes, organizational performance and environmental quality, present a wide array of new potential applications of this principle. ...
... Linear performance measures are recommended as essential to outcome-based budgeting (Jensen, 2003), and will require structurally invariant units capable of mediating comparisons in this way. Without instruments mediating meaningfully comparable relationships, it is impossible to effectively link science and the economy by coordinating capital budgeting decisions. ...
The purpose of this paper is to review some assumptions underlying the use of norm-referenced tests in educational evaluations and to provide a prospectus for research on these assumptions as well as other questions related to norm-referenced tests. Specifically, the assumptions which will be examined are (1) expressing treatment effects in a standard score metric permits aggregation of effects across grades, (2) commonly used standardized tests are sufficiently comparable to permit aggregation of results across tests, and (3) the summer loss observed in Title I projects is due to an actual loss in achievement skills and knowledge. We wish to emphasize at the outset that our intent in this paper is to raise questions and not to present a coherent set of answers.
... Clear, fully enforced property rights and transparent representations of ownership are other forms of standards that reduce the costs of transactions further by removing sources of unpredictable variation in social factors (Ashworth, 2004;Beges et al., 2011;Birch, 2008;Lengnick-Hall et al., 2004). When objective measurement is available in the context of enforceable property rights and proof of ownership, economic transactions can be contracted most efficiently in the marketplace (Baker et al., 2001;Jensen, 2003). The emergence of objective measures of individual abilities, motivations, and health, along with service outcomes, organizational performance and environmental quality, present a wide array of new potential applications of this principle. ...
... Linear performance measures are recommended as essential to outcome-based budgeting (Jensen, 2003), and will require structurally invariant units capable of mediating comparisons in this way. Without instruments mediating meaningfully comparable relationships, it is impossible to effectively link science and the economy by coordinating capital budgeting decisions. ...
Rasch’s unidimensional models for measurement show how to connect object measures (e.g., reader abilities), measurement mechanisms (e.g., machine-generated cloze reading items), and observational outcomes (e.g., counts correct on reading instruments). Substantive theory shows what interventions or manipulations to the measurement mechanism can be traded off against a change to the object measure to hold the observed outcome constant. A Rasch model integrated with a substantive theory dictates the form and substance of permissible interventions. Rasch analysis, absent construct theory and an associated specification equation, is a black box in which understanding may be more illusory than not. Finally, the quantitative hypothesis can be tested by comparing theory-based trade-off relations with observed trade-off relations. Only quantitative variables (as measured) support such trade-offs. Note that to test the quantitative hypothesis requires more than manipulation of the algebraic equivalencies in the Rasch model or descriptively fitting data to the model. A causal Rasch model involves experimental intervention/manipulation on either reader ability or text complexity or a conjoint intervention on both simultaneously to yield a successful prediction of the resultant observed outcome (count correct). We conjecture that when this type of manipulation is introduced for individual reader text encounters and model predictions are consistent with observations, the quantitative hypothesis is sustained.
... Clear, fully enforced property rights and transparent representations of ownership are other forms of standards that reduce the costs of transactions further by removing sources of unpredictable variation in social factors (Ashworth, 2004;Beges et al., 2011;Birch, 2008;Lengnick-Hall et al., 2004). When objective measurement is available in the context of enforceable property rights and proof of ownership, economic transactions can be contracted most efficiently in the marketplace (Baker et al., 2001;Jensen, 2003). The emergence of objective measures of individual abilities, motivations, and health, along with service outcomes, organizational performance and environmental quality, present a wide array of new potential applications of this principle. ...
... Linear performance measures are recommended as essential to outcome-based budgeting (Jensen, 2003), and will require structurally invariant units capable of mediating comparisons in this way. Without instruments mediating meaningfully comparable relationships, it is impossible to effectively link science and the economy by coordinating capital budgeting decisions. ...
Does the reader comprehend the text because the reader is able or because the text is easy? Localizing the cause of comprehension in either the reader or the text is fraught with contradictions. A proposed solution uses a Rasch equation to models comprehension as the difference between a reader measure and text measure. Computing such a difference requires that reader and text are measured on a common scale. Thus, the puzzle is solved by positing a single continuum along which texts and readers can be conjointly ordered. A reader’s comprehension of a text is a function of the difference between reader ability and text readability. This solution forces recognition that generalizations about reader performance can be text independent (reader ability) or text dependent (comprehension). The article explores how reader ability and text readability can be measured on a single continuum, and the implications that this formulation holds for reading theory, the teaching of reading, and the testing of reading.
... Clear, fully enforced property rights and transparent representations of ownership are other forms of standards that reduce the costs of transactions further by removing sources of unpredictable variation in social factors (Ashworth, 2004;Beges et al., 2011;Birch, 2008;Lengnick-Hall et al., 2004). When objective measurement is available in the context of enforceable property rights and proof of ownership, economic transactions can be contracted most efficiently in the marketplace (Baker et al., 2001;Jensen, 2003). The emergence of objective measures of individual abilities, motivations, and health, along with service outcomes, organizational performance and environmental quality, present a wide array of new potential applications of this principle. ...
... Linear performance measures are recommended as essential to outcome-based budgeting (Jensen, 2003), and will require structurally invariant units capable of mediating comparisons in this way. Without instruments mediating meaningfully comparable relationships, it is impossible to effectively link science and the economy by coordinating capital budgeting decisions. ...
This paper describes Mapping Variables, the principal technique for planning and constructing a test or rating instrument. A variable map is also useful for interpreting results. Modest reference is made to the history of mapping leading to its importance in psychometrics. Several maps are given to show the importance and value of mapping a variable by person and item data. The need for critical appraisal of maps is also stressed.
... Clear, fully enforced property rights and transparent representations of ownership are other forms of standards that reduce the costs of transactions further by removing sources of unpredictable variation in social factors (Ashworth, 2004;Beges et al., 2011;Birch, 2008;Lengnick-Hall et al., 2004). When objective measurement is available in the context of enforceable property rights and proof of ownership, economic transactions can be contracted most efficiently in the marketplace (Baker et al., 2001;Jensen, 2003). The emergence of objective measures of individual abilities, motivations, and health, along with service outcomes, organizational performance and environmental quality, present a wide array of new potential applications of this principle. ...
... Linear performance measures are recommended as essential to outcome-based budgeting (Jensen, 2003), and will require structurally invariant units capable of mediating comparisons in this way. Without instruments mediating meaningfully comparable relationships, it is impossible to effectively link science and the economy by coordinating capital budgeting decisions. ...
A construct theory is the story we tell about what it means to move up and down the scale for a variable of interest (e.g., temperature, reading ability, short term memory). Why is it, for example, that items are ordered as they are on the item map? The story evolves as knowledge regarding the construct increases. We call both the process and the product of this evolutionary unfolding "construct definition" (Stenner et al., Journal of Educational Measurement 20:305–316, 1983). Advanced stages of construct definition are characterized by calibration equations (or specification equations) that operationalize and formalize a construct theory. These equations, make point predictions about item behavior or item ensemble distributions. The more closely theoretical calibrations coincide with empirical item difficulties, the more useful the construct theory and the more interesting the story. Twenty-five years of experience in developing the Lexile Framework for Reading enable us to distinguish five stages of thinking. Each subsequent stage can be characterized by an increasingly sophisticated use of substantive theory. Evidence that a construct theory and its associated technologies have reached a given stage or level can be found in the artifacts, instruments, and social networks that are realized at each level.
... Clear, fully enforced property rights and transparent representations of ownership are other forms of standards that reduce the costs of transactions further by removing sources of unpredictable variation in social factors (Ashworth, 2004;Beges et al., 2011;Birch, 2008;Lengnick-Hall et al., 2004). When objective measurement is available in the context of enforceable property rights and proof of ownership, economic transactions can be contracted most efficiently in the marketplace (Baker et al., 2001;Jensen, 2003). The emergence of objective measures of individual abilities, motivations, and health, along with service outcomes, organizational performance and environmental quality, present a wide array of new potential applications of this principle. ...
... Linear performance measures are recommended as essential to outcome-based budgeting (Jensen, 2003), and will require structurally invariant units capable of mediating comparisons in this way. Without instruments mediating meaningfully comparable relationships, it is impossible to effectively link science and the economy by coordinating capital budgeting decisions. ...
The process of ascribing meaning to scores produced by a measurement procedure is generally recognized as the most important task in developing an educational or psychological measure, be it an achievement test, interest inventory, or personality scale. This process, which is commonly referred to as construct validation (Cronbach, 1971; Cronbach & Meehl, 1955; ETS, 1979; Messick, 1975, 1980), involves a family of methods and procedures for assessing the degree to which a test measures a trait or theoretical construct.
... Clear, fully enforced property rights and transparent representations of ownership are other forms of standards that reduce the costs of transactions further by removing sources of unpredictable variation in social factors (Ashworth, 2004;Beges et al., 2011;Birch, 2008;Lengnick-Hall et al., 2004). When objective measurement is available in the context of enforceable property rights and proof of ownership, economic transactions can be contracted most efficiently in the marketplace (Baker et al., 2001;Jensen, 2003). The emergence of objective measures of individual abilities, motivations, and health, along with service outcomes, organizational performance and environmental quality, present a wide array of new potential applications of this principle. ...
... Linear performance measures are recommended as essential to outcome-based budgeting (Jensen, 2003), and will require structurally invariant units capable of mediating comparisons in this way. Without instruments mediating meaningfully comparable relationships, it is impossible to effectively link science and the economy by coordinating capital budgeting decisions. ...
Teachers make use of these two premises to match readers to text. Knowing a lot about text is helpful because “text matters” (Hiebert, 1998). But ordering or leveling text is only half the equation. We must also assess the level of the readers. These two activities are necessary so that the right books can be matched to the right reader at the right time. When teachers achieve this match intuitively, they are rewarded with students choosing to read more.
... Clear, fully enforced property rights and transparent representations of ownership are other forms of standards that reduce the costs of transactions further by removing sources of unpredictable variation in social factors (Ashworth, 2004;Beges et al., 2011;Birch, 2008;Lengnick-Hall et al., 2004). When objective measurement is available in the context of enforceable property rights and proof of ownership, economic transactions can be contracted most efficiently in the marketplace (Baker et al., 2001;Jensen, 2003). The emergence of objective measures of individual abilities, motivations, and health, along with service outcomes, organizational performance and environmental quality, present a wide array of new potential applications of this principle. ...
... Linear performance measures are recommended as essential to outcome-based budgeting (Jensen, 2003), and will require structurally invariant units capable of mediating comparisons in this way. Without instruments mediating meaningfully comparable relationships, it is impossible to effectively link science and the economy by coordinating capital budgeting decisions. ...
The International Vocabulary of Measurement (VIM) and the Guide to Uncertainty in Measurement (GUM) shift the terms and concepts of measurement information quality away from an Error Approach toward a model-based Uncertainty Approach. An analogous shift has taken place in psychometrics with the decreasing use of True Score Theory and increasing attention to probabilistic models for unidimensional measurement. These corresponding shifts emerge from shared roots in cognitive processes common across the sciences and they point toward new opportunities for an art and science of living complex adaptive systems. The psychology of model-based reasoning sets the stage for not just a new consensus on measurement and uncertainty, and not just for a new valuation of the scientific status of psychology and the social sciences, but for an appreciation of how to harness the energy of self-organizing processes in ways that harmonize human relationships.
... Clear, fully enforced property rights and transparent representations of ownership are other forms of standards that reduce the costs of transactions further by removing sources of unpredictable variation in social factors (Ashworth, 2004;Beges et al., 2011;Birch, 2008;Lengnick-Hall et al., 2004). When objective measurement is available in the context of enforceable property rights and proof of ownership, economic transactions can be contracted most efficiently in the marketplace (Baker et al., 2001;Jensen, 2003). The emergence of objective measures of individual abilities, motivations, and health, along with service outcomes, organizational performance and environmental quality, present a wide array of new potential applications of this principle. ...
... Linear performance measures are recommended as essential to outcome-based budgeting (Jensen, 2003), and will require structurally invariant units capable of mediating comparisons in this way. Without instruments mediating meaningfully comparable relationships, it is impossible to effectively link science and the economy by coordinating capital budgeting decisions. ...
Psychometric models typically represent encounters between persons and dichotomous items as a random variable with two possible outcomes, one of which can be labeled success. For a given item, the stipulation that each person has a probability of success defines a construct on persons. This model specification defines the construct, but measurement is not yet achieved. The path to measurement must involve replication; unlike coin-tossing, this cannot be attained by repeating the encounter between the same person and the same item. Such replication can only be achieved with more items whose features are included in the model specifications. That is, the model must incorporate multiple items. This chapter examines multi-item model specifications that support the goal of measurement. The objective is to select the model that best facilitates the development of reliable measuring instruments. From this perspective, the Rasch model has important features compared to other models.
... For the reasons discussed above, this study identifies non-financial measures and relative performance measures as the an-tecedents of budget gaming behavior, with the argument that budget gaming is related to performance evaluation systems (Jensen 2003;Onsy 1973). Performance evaluation systems with non-financial performance measures and relative performance measures that are not focused on achieving budget targets are seen as more adaptive (Morlidge and Player 2010) and may reduce budget gaming behavior (Hansen et al. 2003). ...
... Specific and clear goals in the performance evaluation system can increase individuals' understanding and belief about how they will be evaluated, and this can have an impact on their behavior (Locke and Latham, 1990), which in this case is budget gaming. This is also supported by the views of Jensen (2003) and Onsy (1973) that budget gaming is related to performance evaluation systems. ...
This study investigates the relationship between performance evaluation systems and budget gaming behavior. Specifically, it examines the mediating role of organizational politics and procedural fairness. Data collection was conducted by a questionnaire survey of managers of go-public manufacturing companies in Indonesia. Based on a sample of 128 responses, the partial least squares results indicate that general political behavior, the politics of pay and promotion policies, and procedural fairness significantly mediate the non-financial measures and budget gaming relationship. In contrast, the results indicate that the mediating effects of organizational politics and procedural fairness on the relationship between relative performance measures and budget gaming behavior are generally insignificant. This study supports the goal setting theory and the organizational justice theory, and contributes to the management control system literature by recognizing the importance of performance evaluation systems, the importance of understanding political behavior and the perception of fairness to overcome budget gaming behavior. This study provides assurance that organizations can reduce budget gaming behavior through using non-financial measures or incentives.
... The subsequent Figure 3 illustrates the traditional understanding of budgeting according to Hope and Fraser. Since the 1990s the traditional model is being criticized for not adapting to contemporary needs (Bunce et al., 1995;Wallander, 1999;Jensen, 2003;Player, 2003;Hope and Fraser 2003). Morlidge and Player criticize that many budgeting rules were developed 100 years ago, and therefore require a facelift (Morlidge andPlayer, 2010 cited in Zeller andMetzger, 2013). ...
... It will be of main importance for organizations to counteract to the above, otherwise, the new budgeting process may not encourage knowledge sharing but increases budget gaming and budgetary slack. A major problem said to cause dysfunctional behavior is the connection of budgets with the reward system (Jensen, 2003), e.g. once the budget is achieved, there is less incentive for managers to go beyond it. ...
... This is supported by the findings of the NAO (2001): even senior executives caught gaming can generally remain working in the NHS, or are allowed to slip away with dignity. Low-level gaming is widely tolerated and in some organisations encouraged as part of the culture (Jensen, 2003). What might help to reduce this behaviour is to introduce some more serious sanctions for those found engaging in gaming behaviour, at organisational level and possibly with personal legal effect (ie prosecution). ...
... • Culture of unacceptability & peer pressure An important route to reducing gaming is to engender a culture of unacceptability. At the moment, some organisations have embraced a culture of gaming, for a number of reasons (Jensen, 2003). What might be instructive is to require all chief executives to introduce a 'zero-tolerance' policy against gaming, in order to make such behaviour become a taboo. ...
... Such a configuration can further improve the quality and reliability of accounting estimates (Bertomeu, 2020) and could avoid dysfunctional consequences provoked by managerial manipulations (Jensen, 2003). Yet, human decision-makers often hesitate to use AI predictions. ...
Accurate public budgeting is essential for efficient resource allocation and societal trust. However, recent studies have shown that public budgets often project deficits but have substantial surpluses. This budgetary slack can lead taxpayers to overpay for services not rendered, delay necessary investments, or distort public perceptions of government efficiency. To avoid such unfortunate outcomes, we study how artificial intelligence (AI) can help decision-makers in the public sector with budgeting. We operationalize our research question using a two-step approach. First, we utilize open data from Swiss financial authorities to train and test an AI model. Our preliminary results validate the potential of AI to predict public accounts better than human experts. Second, we study whether decision-makers effectively utilize the AI model in an experimental scenario. The results of our experimental study indicate that human-AI collaboration could indeed support decision-makers to improve public budgeting by reducing budgetary slack.
... Furthermore, studies have examined trust in superiors and subordinates' honesty [14], and superiors' reputation [10], accountability pressure and level of honesty regarding budget gaps [15], Information asymmetry as a mediator of the influence of budget participation on the budget gap [16], gender and code of ethics towards ethical assessment of budget gaps [17], honesty in reducing budget gap misalignment [18], belief and distrust of budget gaps [19], the role of subordinate honesty and leadership reputation on budget gaps. ...
Background: The objective of this study is to examine the effect of superior reputation in reducing budgetary gaps within the context of information asymmetry in local government budgeting. The budgetary gap is a manifestation of the agency conflict between subordinates and superiors, where subordinates possess superior information due to their in-depth knowledge of the field conditions. Consequently, an information asymmetry arises between subordinates and superiors, leading to the occurrence of budgetary slack. Methods: The study employed an experimental research design, focusing on accounting students from the University of Muhammadiyah Jakarta as subjects. Purposive sampling was used to select accounting students who have completed the government accounting course as participants. The study took place at the University of Muhammadiyah Jakarta. The observation period took place between July and August 2022 at the Faculty of Economics and Business, University of Muhammadiyah Jakarta. The research examines the role of a superior reputation in mitigating budgetary gaps under conditions of information asymmetry. The experiment was conducted online, using a simulated environment. The study hypothesizes that superiors' reputation has a negative effect on budgetary slack, while information asymmetry has a positive effect on budgetary slack. Findings: Firstly, it is anticipated that the superiors' reputation has a negative impact on budgetary slack. Secondly, it is expected that information asymmetry has a positive impact on budgetary slack. Lastly, it is anticipated that the superiors' reputations have a negative impact on budgetary slack under conditions of information asymmetry Conclusion: The objective of this study is to contribute to the understanding of how superior reputation and information asymmetry interact in the context of local government budgeting. The findings from this study may provide insights into improving budgetary processes and reducing budget gaps. Practical Implications: The reputation of superiors who have competence and integrity can improve information asymmetry conditions and can reduce budget gaps.
... Bien que nombre d'études révèlent une réelle insatisfaction des managers face au budget (Hofstede 1967(Hofstede , 1970Jensen 2001Jensen , 2003, décrié pour le carcan qu'il représente autant que pour les tensions qu'il cause entre ses différentes missions -notamment prévisions et mesure de la performance - (Berland, Curtis et Sponem 2018), très peu d'entreprises ont décidé de s'en affranchir complètement (Libby et Lindsay 2009 ;Østergren et Stensaker 2010 ;Nguyen, Weigel et Hiebl 2018). Le faible écho qu'ont pu avoir les appels à l'abandon total du budget peut s'expliquer par le fait que celui-ci reste pour nombre de managers un outil rassurant parce que connu (Aksom 2022). ...
Cet article vise à contribuer à la connaissance sur la gestion sans budget en répondant à la question : dans quelle mesure les managers sont-ils prêts à abandonner le budget ? La gestion sans budget est définie comme l’alignement de la finance et du contrôle sur la stratégie (Hope et Fraser 2003a ; Bogsnes 2008). Nous répondons à cette question par une ethnométhodologie menée chez Eramet et complétée par 14 entretiens auprès de contrôleurs. Nous tirons trois conclusions. Les contrôleurs de gestion ignorent qu’il existe des alternatives au processus et au contrôle budgétaires. Les entreprises sont favorables aux grands principes véhiculés par une gestion sans budget. Le budget est devenu une telle accoutumance organisationnelle que l’idée de l’abandonner effraie les contrôleurs de gestion.
... Bien que nombre d'études révèlent une réelle insatisfaction des managers face au budget (Hofstede 1967(Hofstede , 1970Jensen 2001Jensen , 2003, décrié pour le carcan qu'il représente autant que pour les tensions qu'il cause entre ses différentes missions -notamment prévisions et mesure de la performance - (Berland, Curtis et Sponem 2018), très peu d'entreprises ont décidé de s'en affranchir complètement (Libby et Lindsay 2009 ;Østergren et Stensaker 2010 ;Nguyen, Weigel et Hiebl 2018). Le faible écho qu'ont pu avoir les appels à l'abandon total du budget peut s'expliquer par le fait que celui-ci reste pour nombre de managers un outil rassurant parce que connu (Aksom 2022). ...
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... The results show that delegation of decision rights affects managers' misreporting behaviour directly and indirectly through the incentive compensation scheme. Relying on agency theory and prior studies (Nagar, 2002;Jensen, 2003;Chong & Wang, 2019;), it is expected that delegation of decision rights provides managers the opportunity to engage in unethical behaviours especially when their compensation is tied to their ability to achieve their target. These managers are more likely to withhold or even falsify their private information to get compensation. ...
... D'une part, la gestion des résultats est uniquement envisagée pour améliorer les objectifs personnels (par exemple : une évaluation de la performance positive, une augmentation de revenus ou primes). Dans ce cas, cette pratique est généralement considérée comme contraire à l'éthique (Douglas and Wier, 2000 ;Jensen, 2003 ;Greenfield, Norman and Wier, 2008). D'autre part, elle peut être utilisée pour répondre aux objectifs de l'entreprise (par exemple : satisfaire l'objectif budgétaire). ...
Résumé
L’objectif de cet article est d’analyser, dans un cadre expérimental,
comment les potentielles retombées favorables/défavorables influencent les
réponses managériales au comportement de gestion du résultat. Nous
mettons l’accent sur la question suivante : Est – ce que la gestion du résultat
peut se justifier par les conséquences organisationnelles positives ?
Mots clés : gestion du résultat, jugement moral, intention d’agir
Abstract
The purpose of the study is to investigate, in an experimental setting, how
favorable versus unfavorable organizational consequences influence
managerial responses to an employee’s earning management behavior. We
focus on the following question: Do the ends of positive organizational
consequences justify the means of earning management?
Keys words: earning management, ethical judgment, intention to intervene
... Libby & Lindsay (2019) gaming. Although Jensen (2003) reveals that evaluating subordinate performance based on budget targets will lead to a culture of distrust and fraud that leads to budgetary gaming activities, Libby & Lindsay (2019) identified several things that show a negative relationship. ...
This research was conducted to obtain empirical evidence on the practice of budgetary gaming. Many researchers say that budgetary gaming is an unethical practice and often occurs in practice. This unethical practice is allegedly influenced by budget emphasis and trust. In this study, the personality factor used, namely greed, will be tested as a moderating factor in the relationship between trust and budget emphasis on budget gaming. This research was conducted on retail companies registered in APRINDO (Indonesian Retail Entrepreneurs Association) with middle management respondents. The amount of data that has been collected and can be processed is 96 data. For data processing, SEM is used with the help of SmartPLS software. The results show that budget emphasis has a positive effect on budgetary gaming. Trust has a negative effect on budgetary gaming, and greed is proven to moderate budget emphasis and trust on budgetary gaming. The implications of this research can be a reference for the business world related to the design and use of a budget that can overcome gaming behaviour on a budget.Keywords: budgetary gaming, trust, budget emphasis, personality, greed
... Budgets are standing tall despite substantial criticism over decades (Armstrong, 2011;Bogsnes, 2016;Hope & Fraser, 2003;Jensen, 2003;Wallander, 1999). However, managers may be wellaware of the budgets' shortcomings and have configured control packages with different systems for different purposes. ...
The purpose of this paper is to provide an overview of the diffusion and adoption motives for benchmarking in Norwegian firms. Based on a questionnaire survey, we conduct a descriptive analysis of the types of benchmarking used, to what extent firms expect to implement or increase the use in the future, and its potential use in combination with other management practices. The data indicate that Norwegian firms formally use benchmarking as a management practice. Benchmarking is clearly used in conjunction with and alongside other management accounting and control practices. Benchmarking is often understood as a practice that could replace budgets. We suggest a more complex picture, where benchmarking seems complementary to budgeting. Finally, use of KPIs, as well as Big Data Analytics add complexities in choosing efficient management control packages. Overall, our paper theorizes about benchmarking and reflects on the future usefulness of benchmarking and interdependencies with other management practices.
... When companies deal with the state/provincial level, they receive more support from official governmental structures during their internationalization. State affiliation mirrors a greater status that enhances the trust of a focal company and decreases the uncertainty that their prospective international partners may feel about the company (Jensen, 2003). Moreover, in comparison with the city/country level of affiliation, where the main goal of local government is to increase local economy output and revenue (Liu, Sun, & Woo, 2006), the government at a high level sets more strategic goals, which are more concerned with the integration of the country into the world economy, and therefore encouraging companies for international investment is one of their main priorities (Child & Rodrigues, 2005). ...
... When companies deal with the state/provincial level, they receive more support from official governmental structures during their internationalization. State affiliation mirrors a greater status that enhances the trust of a focal company and decreases the uncertainty that their prospective international partners may feel about the company (Jensen, 2003). Moreover, in comparison with the city/country level of affiliation, where the main goal of local government is to increase local economy output and revenue (Liu, Sun, & Woo, 2006), the government at a high level sets more strategic goals, which are more concerned with the integration of the country into the world economy, and therefore encouraging companies for international investment is one of their main priorities (Child & Rodrigues, 2005). ...
... Bankers sometimes aim at advancing their sales through unethical selling behaviour thereby neglecting principles of prudence, honesty, reliability, dependability, integrity, confidentiality and fairness, that are designed to create a professional banking environment (Evans, McFarland, Dietz & Jaramillo, 2012). Many studies on sales ethics have reported salespersons admitting to unethical behaviours (Akenbor & Imade, 2011;Bellizzi & Hasty, 2003;Dubinsky, Nataraajan & Huang, 2004;Guo, 2010;Hansen & Riggle, 2009;Haron, Ismail & Razak 2011;Jensen, 2003;Karande, Rao, & Singhapakdi, 2002). However, it would appear that few researchers have studied the ethical behaviour of salespersons from the customer's perspective. ...
This study focused on the various unethical sales behaviours as identified by the Chartered Institute of Bankers of Nigeria (CIBN) and customers' loyalty commercial banks. Its objective was to examine the extent to which customers' perception of salesperson's non-disclosure about bank products, price discrimination, breach of promise, offer of gifts to win and manage accounts and taking advantage of customers' ignorance, affect customers' loyalty in the banking sector. A survey method was adopted for the study. Questionnaire were administered at the customers' shops, offices and business premises in Benin City. The data were analysed using descriptive statistics and ordinary least square (OLS) regression. The hypotheses were tested at 95% confidence level. The result showed that 91% of the respondents were loyal to their respective banks, salespersons taking advantage of customers' ignorance and offer of gifts were statistically significant with bank customers' loyalty, while customers' perception of salespersons' non-disclosure of information, breach of promises to customers and price discrimination were not statistically significant with bank customers' loyalty. It is recommended that managers should ensure that unethical sales behavour is reduced by salespersons in Nigerian banks to encourage customer loyalty
... The following figure illustrates the traditional understanding of budgeting according to Hope and Fraser. Since the 1990s the traditional model is being criticized for not adapting to contemporary needs (see Bunce et al., 1995;Wallander, 1999;Jensen, 2003;Player, 2003 sophisticated customers, which are said to require more agility and room for creativity (see Bunce et al., 1995, p. 254;Fanning, 1998, p. 4;Hope & Fraser, 2003, pp. 2-3). ...
Organizations in the early 21st-century face challenging market dynamics and constant change driven by disruptive innovations, such as the Internet of Things (IoT), Internet of Services (IoS), Big-Data-Analytics (BDA), or artificial intelligence (AI). These innovations also affect the way of corporate budgeting, therefore discourses on budgeting effectiveness gain contemporary importance for practitioners and researchers. Organizations are dared to ensure solution-oriented budgeting approaches to solve budgeting obstacles, such as the killing of managers’ motivation and innovative strength while also ensuring agility and pinpoint accuracy in attaining corporate objectives.
The banking segment is the engine of any nation's economy. The economic status of any nation rest on how stable their banking industry is. In other words, any issue that affects banks also has an impact on the economy of the nation. This study assess the implication of treasury single account on banks in Nigeria; a study of first bank of Nigeria PLC. A sample of 200 participants were randomly selected across 50 branches of first banks in Plateau, Ondo, Bayelsa, Bauchi, Kaduna and Enugu state. Primary and secondary data were used for this study. Descriptive statistics such as percentage was used to analyse the socio-demographic variable of the respondents in this study and inferential statistics such as regression and correlation analysis were used to analyze the data to test the three hypotheses in this study with the aid of SPSS version 25 software. The results revealed that TSA policy which seeks to reduce FG Deposit in the commercial banks has significantly reduce the level of banks liquidity. TSA policy which seeks to reduce FG Deposit in the commercial banks has significantly reduce Commercial Banks Deposit Mobilization TSA policy which seeks to reduce FG Deposit in the commercial banks has significantly reduce Loans and Advances. The study recommends that government should secure as soon as possible the appropriate legislative support to facilitate the relevant regulatory environment which will drive the effective implementation of the TSA in the states and local governments in order to promote accountability and transparency at all levels of government and the banks should avoid over-reliance of government funds and source for funds from other sectors of the economy among other recommendations were made.
The control function of controlling tries to control the behavior of employees and to coordinate it across the entire company. The central instrument for this is planning, which also forms the basis for the control function, i.e. the comparison of target and actual values. This allows controlling to check whether the company is on the right track or whether measures to correct it are necessary. In planning, there are many challenges: How should the planning be designed, who should be involved in its creation and how can one ensure that the planning participants do not abuse their information. The danger of distortion lies in the connection to the determination of the variable compensation. Particular attention is paid to the derivation of goals in planning. The company must decide in which direction it wants to go. The statement “the company must …” already shows the first problem: Who sets the goals—the abstract unit “company” cannot do this. People have to act for the company. Afterwards the question arises, which target variables are relevant and how the target level is determined concretely.
Herrschaft bringt immer auch Widerständigkeit hervor. Demnach stellen Regelabweichungen, die sich aus unvollständig determiniertem Arbeitshandeln ergeben, ein strukturelles Merkmal im Arbeitsprozess dar. Die Formierung eines informellen Repertoires widerständiger Praktiken im Kontext betrieblicher Herrschaft ist dabei von der Arbeitssoziologie bisher vernachlässigt worden. Um diese konzeptionelle Leerstelle zu füllen, systematisieren die Beiträger*innen die Vielzahl der Praktiken und stellen verschiedene methodische, theoretische und empirische Perspektiven einer arbeitssoziologischen Widerstandsforschung vor.
Herrschaft bringt immer auch Widerständigkeit hervor. Demnach stellen Regelabweichungen, die sich aus unvollständig determiniertem Arbeitshandeln ergeben, ein strukturelles Merkmal im Arbeitsprozess dar. Die Formierung eines informellen Repertoires widerständiger Praktiken im Kontext betrieblicher Herrschaft ist dabei von der Arbeitssoziologie bisher vernachlässigt worden. Um diese konzeptionelle Leerstelle zu füllen, systematisieren die Beiträger*innen die Vielzahl der Praktiken und stellen verschiedene methodische, theoretische und empirische Perspektiven einer arbeitssoziologischen Widerstandsforschung vor.
Building a university design regulations and standards is not only necessary for units in the industry but also contributes to bringing to society modern educational models, suitable to the economic conditions of the country. The standard applies to the design, renovation and new design of university buildings throughout Vietnam, based on the document issued by the Ministry of Construction No. TCVN 3981:1985. This paper also suggest: Improve the quality of the teaching /lecture service staff. First, Develop a reasonable monitoring, evaluation and reward mechanism to motivate people to work hard; Second, Each faculty member on duty has a job description with clear responsibilities, rights and obligations; Third, Conduct ongoing training. It is necessary to regularly organize training and training courses on serving, communicating, and dealing with customers.
This study investigates when and why intra‐year bonus target revisions occur. This is important as intra‐year target revisions occur regularly in practice but are not well understood. Specifically, we analyze two potential drivers of intra‐year bonus target revisions: reduced managerial incentives owing to managers dropping out of the incentive zone of their piecewise defined bonus function and potential spillovers from planning target revisions that reflect changes in performance expectations during the year. We also investigate the effects of organizational characteristics on intra‐year bonus target revisions. Using data collected from sales executives via multiple waves of surveys, we find evidence for both predicted drivers. Additionally, consistent with our predictions, we find that the levels of delegated decision authority, intra‐firm interdependencies, and information asymmetry negatively moderate the positive association between reduced managerial incentives and revision likelihood. Our paper contributes to the target setting literature by being the first study to investigate intra‐year bonus target revisions and shed light on when firms commit to not revising such targets intra‐year. This article is protected by copyright. All rights reserved.
A recent trend in organizations is to motivate employees with goal‐based prosocial rewards, whereby employees must donate their rewards to charities upon goal attainment. We examine the motivational effects of goal‐based prosocial rewards versus cash rewards under different levels of goal difficulty. We develop our hypotheses based on affective valuation theory, which posits that when valuing uncertain outcomes by affect rather than calculation, individuals are largely insensitive to changes in probability of the outcomes, including probability of goal attainment. Experiment results support our hypotheses. Specifically, we find that employees who are rewarded with prosocial (versus cash) goal‐based rewards are more likely to adopt an affective valuation approach. Consequently, when employees are assigned either an easy goal or a stretch goal, their effort is higher when incentivized with a goal‐based prosocial reward than a cash reward. Furthermore, there is a less curve‐linear relationship between goal difficulty and effort with prosocial (versus cash) goal‐based rewards. These findings highlight for incentive system designers the motivational advantage of goal‐based prosocial rewards relative to traditional cash rewards. Furthermore, we extend the academic literature by showing how affect‐rich rewards such as prosocial rewards can influence employees’ assessment of the probability of goal attainment. This article is protected by copyright. All rights reserved.
We investigate how performance-to-target (exceeding versus missing prior target) and task type (ability-driven versus effort-driven) affect managers' target-setting decisions in a setting where a manager sets targets for multiple employees. To do so, we use an experiment that involves executives, who average more than 16 years of work experience. We predict and find stronger target adjustments when prior targets are exceeded than when they are missed, especially when tasks are ability-driven. We also predict and find targets are differentiated more between employees within a firm when tasks are ability-driven rather than effort-driven, but this effect is attenuated when prior targets are missed. As prior empirical findings are inconclusive in this area of research, we contribute to the literature by providing controlled experimental evidence about the asymmetric nature of target adjustments. Additionally, we identify an important factor affecting managers' target-setting decisions—task type—that has largely been neglected in prior work.
JEL Classifications: M21; M41; M52.
Whether you're a manager, company psychologist, quality control specialist, or involved with motivating people to work harder in any capacity—Locke and Latham's guide will hand you the keen insight and practical advice you need to reach even your toughest cases. (PsycINFO Database Record (c) 2012 APA, all rights reserved)
When the production behavior of industrial workers is examined by participant observation, it is seen that loafing on the job may not be the simple line of inactivity that some students of the subject have thought it. Close scrutiny of the particulars of "soldiering" in one piecework machine shop revealed that group adherence to a "bogey" was but one of several kinds of output restriction in the repertoire of machine operatives and that the work group was restricting production day in and day out.
This paper examines the role of the corporate objective function in corporate productivity and efficiency, social welfare, and the accountability of managers and directors. The author argues that because it is logically impossible to maximize in more than one dimension, purposeful behavior requires a single‐valued objective function. Two hundred years of work in economics and finance implies that, in the absence of externalities and monopoly, social welfare is maximized when each firm in an economy maximizes its total market value.
The main contender to value maximization as the corporate objective is stakeholder theory, which argues that managers should make decisions so as to take account of the interests of all stakeholders in a firm, including not only financial claimants, but also employees, customers, communities, and governmental officials. Because the advocates of stakeholder theory refuse to specify how to make the necessary tradeoffs among these competing interests, they leave managers with a theory that makes it impossible for them to make purposeful decisions. With no clear way to keep score, stakeholder theory effectively makes managers unaccountable for their actions (which helps explain the theory's popularity among many managers).
But if value creation is the overarching corporate goal, the process of creating value involves much more than simply holding up value maximization as the organizational objective. As a statement of corporate purpose or vision, value maximization is not likely to tap into the energy and enthusiasm of employees and managers. Thus, in addition to setting up value maximization as the corporate scorecard, top management must provide a corporate vision, strategy, and tactics that will unite all the firm's constituencies in its efforts to compete and add value for investors.
In clarifying the proper relation between value maximization and stakeholder theory, the author introduces a somewhat new corporate objective called “enlightened value maximization.” Enlightened value maximization uses much of the structure of stakeholder theory—notably the need to consider the interests of all corporate stakeholders—while continuing to posit maximization of long‐run firm value as the criterion for making the necessary tradeoffs among stakeholders.
The paper comes to similar conclusions about the Balanced Scorecard, which is described as the managerial equivalent of stakeholder theory. Although the Balanced Scorecard can add value by helping managers better understand the drivers of shareholder value, it should not be used as a performance measurement and incentive compensation system because it fails to provide a single valued score, a clear way of distinguishing superior from substandard performance.
Studies examining managerial accounting decisions postulate that executives rewarded by earnings-based bonuses select accounting procedures that increase their compensation. The empirical results of these studies are conflicting. This paper analyzes the format of typical bonus contracts, providing a more complete characterization of their accounting incentive effects than earlier studies. The test results suggest that (1) accrual policies of managers are related to income-reporting incentives of their bonus contracts, and (2) changes in accounting procedures by managers are associated with adoption or modification of their bonus plan.
Quarterly earnings numbers dominate the decisions of executives, analysts, investors, and auditors. Yet for all the attention paid to these numbers, they're not much use in predicting a company's future performance and cash flows. Even economists are unanimous in their view that these numbers say next to nothing about a company's prospects beyond the next quarter. Nonetheless, meetings analysts' expectations that earnings will rise in a smooth, steady, unbroken line has become, at many corporations, a game whose imperatives override even the imperative to deliver the highest possible return to shareholders. The fetishistic attention paid to this almost meaningless indicator might be cause for amusement, except for one thing: the earnings game does real harm. It distorts corporate decision making. It reduces securities analysis and investing to a guessing contest. It compromises the integrity of corporate audits. Ultimately, it undermines the capital markets. As market participants increasingly come to view the quarterly number as a sort of collective fiction, offered and received in a spirit of mutual cynicism, they lose faith in the numbers affected by quarterly earnings--including stock prices themselves. And no market can survive long if its participants see no connection between prices and the intrinsic value of the goods on offer. In this article, HBR senior editor Harris Collingwood takes an in-depth look at these effects, examining the intricacies of the earnings game and why companies believe they have no choice but to play it. Until more corporate executives change their practices, he explains, the earning game will never lack for players.
Investors are keenly interested in financial reports of earnings because earnings provide important information for investment decisions. Thus, executives who are monitored by investors and directors face strong incentives to manage earnings. We introduce consideration of behavioural/institutional thresholds for earnings in this mix of incentives and governance. A model illustrates how thresholds induce specific types of earnings management. Empirical explorations find clear support for earnings management to exceed each of the three thresholds that we consider: positive profits, sustain-recent-performance, and meet-market-expectations. The thresholds are hierarchically ranked. The future performance of firms that possibly boost earnings to just cross a threshold appears to be poorer than that of less suspect control groups.
Seeing red: how ex-accountant added up to trouble for humbled Xerox
- J Bandler
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Bandler, J. and Maremont, M. ‘Seeing red: how ex-accountant added up to trouble for humbled Xerox’, Wall Street Journal, 28 June 2001, p. A1
Xerox executive challenges its accounting and is fired-query into Mexican unit’s books snowballs
- J Bandler
- J Hechinger
Bandler, J. and Hechinger, J., ‘Xerox executive challenges its accounting and is fired-query into Mexican unit’s books snowballs’, Asian Wall Street Journal, 6 February 2001
Lernout unit booked fictitious sales, says probe
- J Carreyrou
Carreyrou, J., ‘Lernout unit booked fictitious sales, says probe’, Wall Street Journal, 9 April 2001, p. B2
Half-point rate cut is worth 10% to the NASDAQ'
- See A Bary
See A. Bary, 'Half-point rate cut is worth 10% to the NASDAQ', Barrons Online, 23 April
2001.
Incentive plan hurts Chrysler
New York Times, 'Incentive plan hurts Chrysler', 1 May 2001, p. 5.
Lawsuit details Rite Aid's accounting woes
- M Maremont
M. Maremont, 'Lawsuit details Rite Aid's accounting woes', Wall Street Journal,
28 February 2001, p. C1.
Beyond budgeting: breaking through the barrier to ''The Third wave
- J Hope
- R Fraser
Hope, J. and Fraser, R., 'Beyond budgeting: breaking through the barrier to ''The Third
wave'' ', Management Accounting, December, 1997.
Chronology: key events in Lucent's recent trouble
- Reuters
Reuters, 'Chronology: key events in Lucent's recent trouble', 24 April 2001, http://
www.forbes.com/newswire/2001/04/24/rtr242259.html (24 April 2001).
Behind Lucent's woes: push to meet high revenue goalLessons from the Lucent debacleSEC continues Lucent probe
- D J See
- R Berman
- S N Blumenstein
- T Mehta
- Murphy
See D. J. Berman and R. Blumenstein, 'Behind Lucent's woes: push to meet high revenue
goal', Wall Street Journal, 29 March 2001. S. N. Mehta, 'Lessons from the Lucent debacle',
Fortune, 5 February 2001. T. Murphy, 'SEC continues Lucent probe', 19 February 2001, http://
www.electronicnews.com/issue/RegisteredIssues/2001/02192001/z8f-1.asp, (23 April 2001).
Chrysler revises dealer quotas', AP Online
- J Suhr
Suhr, J., 'Chrysler revises dealer quotas', AP Online, 7 May 2001.
Chrysler's reward program backfires'. The Globe and Mail
- J Hyde
Hyde, J., 'Chrysler's reward program backfires'. The Globe and Mail, 1 May 2001, p. B14.
Xerox releases details from independent investigation of Mexico accounting issues J. Bandler and J. Hechinger, 'Xerox executive challenges its accounting and is fired – query into Mexican unit's books snowballs
See Xerox Press Release, 'Xerox releases details from independent investigation of Mexico
accounting issues', 1 February 2001, http://biz.yahoo.com/bw/010201/ct_xerox.html (23 April
2001). J. Bandler and J. Hechinger, 'Xerox executive challenges its accounting and is fired –
query into Mexican unit's books snowballs', Asian Wall Street Journal, 7 February 2001.
Lessons from the Lucent debacle
- S N Mehta
Mehta, S. N., 'Lessons from the Lucent debacle', Fortune, 5 February 2001.
When the signal is ''move it or lose it
- B Toffler
Toffler, B., 'When the signal is ''move it or lose it''', New York Times, 17 November 1991.
A software company runs out of tricks', NY Times, section 3, p. 1, and A. Berneson, 'Computer associate officials defend accounting methods
- A Berneson
A. Berneson, 'A software company runs out of tricks', NY Times, 29 April 2001, section
3, p. 1, and A. Berneson, 'Computer associate officials defend accounting methods', NY Times,
1 May 2001, section C, p. 1.
Monday management: managers count blessings as budgets begin to lose currency – some firms long for freedom from the burden of budgeting
- T Lester
Lester, T., 'Monday management: managers count blessings as budgets begin to lose currency –
some firms long for freedom from the burden of budgeting', Irish Times, 2000.
Rent-way details improper bookkeeping: expenses were artificially cut by $127 million, report says
- Sook Queena
- Kim
Queena Sook Kim, 'Rent-way details improper bookkeeping: expenses were artificially cut
by $127 million, report says', Wall Street Journal, 8 June 2001, p. C1.
Beyond budgeting white paper, beyond budgeting round table'. (Fraser Hope Associates, CAM-I Consortium for Advanced Manufacturing
- J Hope
- R Fraser
Hope, J. and Fraser, R., 'Beyond budgeting white paper, beyond budgeting round table'.
(Fraser Hope Associates, CAM-I Consortium for Advanced Manufacturing, International,
1999a).
- J Hope
- R Fraser
Hope, J. and Fraser, R., 'Beyond budgeting', Strategic Finance, Vol. 30, 1 October 2000.
Cendant case scorecard: government 3; book-cookers 0', Fortune
- See
See 'Cendant case scorecard: government 3; book-cookers 0', Fortune, 10 July 2000.
Value maximization, stakeholder theory, and the corporate objective function Available from the Social Science Research Network eLibrary at: http:// papers.ssrn.com/paper ¼ 220671. An earlier version of this paper appears in Breaking the Code of Change
- M C Jensen
Jensen, M. C., 'Value maximization, stakeholder theory, and the corporate objective function',
European Financial Management, Vol. 7, no. 3, September 2001, pp. 297–317. In Business
Ethics Quarterly, Vol. 12, no.1, January 2001, and the Journal of Applied Corporate Finance,
Fall 2001. Available from the Social Science Research Network eLibrary at: http://
papers.ssrn.com/paper ¼ 220671. An earlier version of this paper appears in Breaking the
Code of Change, Michael Beer and Nithan Norhia, eds, Harvard Business School Press,
2000.
Re-inventing the budget', CFO Asia
- J Kersnar
Kersnar, J., 'Re-inventing the budget', CFO Asia, July/August 1999.
Compaq denies ''channel stuffing
- J Kelly
- Ticehurst
Kelly and J. Ticehurst, 'Compaq denies ''channel stuffing'' claim', 12 December 2000,
http://www.vnunet.com/News/1115296 (23 April 2001).
Toss your budget out the window
- T Thomas
Thomas, T., 'Toss your budget out the window', Business Review Weekly, 8 September 2000.