Prof. Dr. Martin Artz Chair of Management Accounting & Control (starting September 2018) Universitätsstr. 14-16 48143 Münster management.control@uni-muenster.de Management Accounting & Control Seminar WiSe 2018 [in Englischer Sprache] Topic: Managerial Target Setting and Implications for Corporate Practice I. Idea of the Seminar The intention of the seminar is to discuss most recent research on how to set targets for managers and employees to maximize performance and to execute corporate strategy. We will compare academic evidence of how firms (should) set targets and compare it to the practitioner view on target setting. Out of this comparison, we will discuss during the seminar what we can (not) learn from academic research for management practice, what the underlying trade-offs in target setting are, and how we could handle them as managers or consultants in corporate practice. We will put a specific emphasis on the OKR framework which is implemented at INTEL, GOOGLE, and more recently in Germany at ZALANDO, TRIVAGO, MYMUESLI and other innovative, technology driven companies. Very likely, the seminar will be in close cooperation with TRIVAGO, Düsseldorf (please see organizational issues). The seminar will start with a kick-off meeting and concludes with a presentation day. Please show up at the kick-off meeting (9 th of July 2018) in room JUR 498 in any case! II. Organizational Issues a) Important dates Submission application package Friday, 29 th of June 2018, 18:00 (evening) Kick-off meeting Monday, 9 th of July 2018, 18:00 (evening), room JUR 498 Submission seminar thesis Friday, the 7 th of December 2018, 12:00 (noon) Submission of presentation slides Friday, the 11 th of January 2019, 12:00 (noon) Seminar Mid of January 2019, all day (date will be announced soon) b) Practice Cooperation The seminar is in cooperation with a partner firm. Very likely this partner will be TRIVAGO (www.trivago.de) in Düsseldorf, a major platform for hotel booking and price comparison. TRIVAGO has implemented the OKR target setting concept.
- 2 - c) Credits and Requirements Participants can acquire 12 CP for the module ACM 05 or 06. Requirements are: A written seminar thesis in form of (1) a hard copy and (2) a data file version as a single Word and as a single PDF file. A presentation of the seminar thesis of about 20-30 minutes. An active participation during the presentation day including preparation of all seminar topics (i.e., reading other s theses!) In case I do not hear anything else, all participants agree to share their theses among all participants before the presentation day electronically. d) Questions Please address all your questions to Prof. Dr. Martin Artz (management.control@uni-muenster.de). Please be aware that all organizational questions are or can be addressed in the kick-off meeting in July. e) Grades The grade is based on the written thesis (60%), the seminar presentation (20%), and the participation in discussions during the presentation day (20%). There is no written exam. f) Registration for the Seminar You can apply for the seminar now until end of May (see important dates). Please submit (1) a short CV, (2) a list of finished courses including grades, and (3) your topic preferences with at least five topics in descending order to management.control@uni-muenster.de. The number of participants is restricted. Slots and topics are allocated by the date of application ( first come, first serve ) as well as by performance of the application package. You will be informed end of June latest (depending on your application submission), if you can participate. Please register at PAM after confirmation of participation. g) Kick-off Meeting In case you got accepted for the seminar, the visit of the kick-off meeting is mandatory. You will receive all guidelines and recommendations for the thesis. I expect the meeting to take about one hour (i.e., from 18:00 to 19:00).
- 3 - III. Seminar Topics (1) Why do firms use targets for performance measurement? Anderson, S. W., H. C. Dekker, and K. L. Sedatole (2010), An empirical examination of goals and performance-to-goal following the introduction of an incentive bonus plan with participative goal-setting, Management Science, 56 (1), 90-109. Hansen, S. C. and W. A. Van der Stede (2004), Multiple facets of budgeting: an exploratory analysis, Management Accounting Research, 15 (4), 415 439. Murphy, K. J. (2001), Performance standards in incentive contracts, Journal of Accounting and Economics, 30, 245-278. (2) How difficult should targets be? Targets to drive motivation Arnold, M. C. and M. Artz (2015), Target difficulty, target flexibility, and firm performance: Evidence from business units targets, Accounting, Organizations and Society, 40 (1), 61 77. Locke, E. A. and G. P. Latham (2002), Building a practically useful theory of goal setting and task motivation a 35-year odyssey, American Psychologist, 57 (9), 705 717. Merchant, K. A. and J. F. Manzoni (1989), The achievability of budget targets in profit centers: a field study, The Accounting Review, 64 (3), 539 558. (3) How difficult should targets be? Targets to drive creativity and innovation Brüggen, A., C. Feichter, and M. G. Williamson (2018), The effect of input and output targets for routine tasks on creative task performance, The Accounting Review, 93 (1), 29-43. Merchant, K. A. and J. F. Manzoni (1989), The achievability of budget targets in profit centers: a field study, The Accounting Review, 64 (3), 539 558. Webb, R. A., M. G. Williamson, and Y. M. Zhang (2013), Productivity-target difficulty, target-based pay, and outside-the-box thinking, The Accounting Review, 88 (4), 1433-1457. (4) How do targets fit into managerial bonus contracts? Jensen, M. C. (2003), Paying people to lie: the truth about the budgeting process, European Financial Management, 9 (3), 379 406. Merchant, K., Stringer, C. P., and P. T. Shantapriyan (2018), Setting financial performance thresholds, targets, and maximums in bonus plans, Journal of Management Accounting Research, forthcoming. Murphy, K. J. (2001), Performance standards in incentive contracts, Journal of Accounting and Economics, 30, 245-278.
- 4 - (5) How do firms set targets? The role of past manager performance Indjejikian, R. J. and D. Nada (2002), Executive target bonuses and what they imply about performance standards, The Accouting Review, 77 (4): 793-819. Indjejikian, R. J., M. Matějka, K. A. Merchant, and W. A. Van der Stede (2014), Earnings targets and annual bonus incentives, The Accounting Review, 89 (4), 1227 1258. Kim, S. and J. Y. Shin (2017), Executive bonus target ratcheting: Evidence from the new executive compensation disclosure rules, Contemporary Accounting Research, 34 (4), 1843-1879. (6) How do firms set targets? The role of peer performance benchmarking Aranda, C., J. Arellano, and A. Davila (2014), Ratcheting and the role of relative target setting, The Accounting Review, 89, 1197-1226. Casas-Arce, P., M. Holzhacker, M. Mahlendorf, and M. Matějka (2017), Relative performance evaluation and the ratchet effect, Contemporary Accounting Research, Forthcoming. Matsumura, E. M., and J. Y. Shin (2006), An empirical analysis of an incentive plan with relative performance measures: Evidence from a postal service, The Accounting Review, 81 (3), 533 566. (7) How do firms set targets? Employee participation in target setting Erez, M., and I. Zidon (1984), Effect of goal acceptance on the relationship of goal difficulty to performance, Journal of Applied Psychology, 69 (1), 69 78. Fisher, J. G., J. R. Frederickson, and S. A. Peffer (2000), Budgeting: an experimental investigation of the effects of negotiation, The Accounting Review, 75 (1), 93-114. Young, S. M. (1985), Participative Budgeting: The effects of risk aversion and asymmetric information on budgetary slack, Journal of Accounting Research, 23 (2), 829-842. (8) Do managers manipulate performance to achieve targets? Bol, J. C. and J. B. Lill (2015), Performance target revisions in incentive contracts: Do information and trust reduce ratcheting and the ratchet effect?, The Accounting Review, 90 (5), 1755-1778. Bouwens, J. and P. Kroos (2011), Target ratcheting and effort reduction, Journal of Accounting and Economics, 51 (1 2), 171 185. Bennett, B., Bettis, J. C., Gopalan, R. and T. Milbourn (2017), Compensation goals and firm performance, Journal of Financial Economics, 124, 307-330. Leone, A. J. and S. Rock (1999), Empirical tests of budget ratcheting and its effect on managers discretionary accrual choices, Journal of Accounting and Economics, 33 (1), 43 67.
- 5 - (9) Should firms adjust targets during the year? Arnold, M. C. and M. Artz (2015), Target difficulty, target flexibility, and firm performance: Evidence from business units targets, Accounting, Organizations and Society, 40 (1), 61 77. Arnold, M. C. and M. Artz, and R. Grasser (2015), Incentive recalibration through intra-year target revisions: evidence from sales managers targets, AAA 2016 Management Accounting Section (MAS) Meeting Paper. Kelly, K. O. R., A. Webb, and T. Vance (2015), The Interactive Effects of Ex Post Goal Adjustment and Goal Difficulty on Performance, Journal of Management Accounting Research, 27 (1), 1-25. (10) How many different target dimensions should managers get? Brickley, J. A. and J. L. Zimmerman (2001), Changing incentives in a multitask environment: evidence from a top-tier business school, Journal of Corporate Finance, 7(4), 367-396. Hannan, R. L., G. P. McPhee, A. H. Newman, and I. D. Tafkov (2013), The effect of relative performance information on effort allocation and performance in a multi-task environment, The Accounting Review, 88 (2), 553-575. Miller, G. A. (1956), The magical number seven, plus or minus two some limits on our capacity for processing information, Psychological Review, 101 (2), 343-352. Prendergast, C. (1999), The provision of incentives in firms, Journal of Economic Literature, 37 (1), 7-63. Roberts, J. (2004), The modern firm: organizational design for performance and growth, Oxford University Press. [Chapter 4, focus on multi-tasking issues] (11) The conflicts of targets for operative planning versus performance evaluation Arnold, M. and M. Artz (2018), The use of a single budget or separate budgets for planning and performance evaluation, Working Paper SSRN. Barrett, M. E. and L. B. Fraser (1977), Conflicting roles in budgeting for operations, Harvard Business Review, 55 (4), 137 146. Becker, S. D., M. Mahlendorf, U. Schäffer, and M. Thaten (2017), Budgeting in times of economic crisis. Contemporary Accounting Research, 33 (4), 1489-1517. Churchill, N. C. (1984), Budget choice: Planning vs. control, Harvard Business Review, 62 (4), 150 64.
- 6 - IV. Recommendations and Guidelines The literature suggestions are a starting point for you to get deeper into the topic. Please a. Use these academic references to find more related literature and to get an expert into your specific topic b. Investigate how your specific topic is discussed in practice (e.g., blogs, practitioners magazines, consultancy whitepapers, ) c. Compare and discuss how your specific topics is implemented into the OKR framework. Important: I will give you precise suggestions how to approach your topic efficiently during our joint kick-off meeting. At the meeting, all participants will receive guidelines for scientific work, too (e.g., citations, research approaches, etc.). I am looking forward to see you at our seminar. Münster, Spring 2018 Martin Artz