Assessing the Performance of Business Unit Managers

CentER Discussion Paper No. 2006-92

40 Pages Posted: 10 Oct 2006

See all articles by Laurence van Lent

Laurence van Lent

Frankfurt School of Finance and Management

Jan Bouwens

Amsterdam Business School

Date Written: September 2006

Abstract

Using a sample of 140 managers, we investigate the use of various performance metrics in determining the periodic assessment, bonus decisions, and career paths of business unit managers. We show that the weight on accounting return measures is associated with the authority of these managers, and we document that both disaggregated measures (expenses and revenues), and non-financial measures play a greater role as interdependencies between business units increase. The results suggest separate and distinct roles for different types of performance measures. Accounting return measures are used to create the proper incentives for managers with greater authority, while disaggregated and non-financial measures are employed in response to interdependencies.

Keywords: performance measures, business units, managerial performance

JEL Classification: M40, M46, L23, J33

Suggested Citation

van Lent, Laurence and Bouwens, Jan, Assessing the Performance of Business Unit Managers (September 2006). CentER Discussion Paper No. 2006-92, Available at SSRN: https://ssrn.com/abstract=936320 or http://dx.doi.org/10.2139/ssrn.936320

Laurence Van Lent (Contact Author)

Frankfurt School of Finance and Management ( email )

Adickesallee 32-34
Frankfurt am Main, 60322
Germany

HOME PAGE: http://www.laurencevanlent.org

Jan Bouwens

Amsterdam Business School ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands
+31 20 5258740 (Phone)

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