CPA Annual Research Lecture 2021: Anne Lillis - Q&A
Questions which were not answered during the live Q&A session have been responded to by Emerita Professor Anne Lillis, University of Melbourne below.
Click each question to view its answer.
• How important is the relativity of income between different levels within an entity when trying to develop a trusted performance measurement model?
This is a really interesting question. I am also interested in pay relativities within organisations. It was not within the scope of our study, but we would have noted it had it been raised. It wasn’t. So while the ‘middle’ managers we spoke with told us that the bonus entitlement varied by level of management, and then proceeded to tell us how their bonus was determined, they were not at any stage critical of the discrepancies across levels. So I guess there is a range of possible explanations – pay levels may have been compressed (unlikely), or the relativities were understood and considered fair (possible), or our questions didn’t prompt participants to respond on this issue (likely). So it remains an interesting question for a future study! By undermining fairness, distorted pay relativities may well undermine the credibility of the relational contracts underpinning the performance measurement and reward process.
• I am just wondering whether it is feasible and interesting to "field-study" how third party compensation consultants and board of directors play their roles in balancing the trade-off between subjective measures and objective measures.
My priors would suggest that both third party consultants and Boards will push firms towards hard metrics. It also makes me think though that it would be interesting to study the dynamics here – eg whether firms that experience gaming and dysfunctional incentive-driven behaviours push back against the emphasis on hard metrics, and whether the prior experience (of incentive-driven behaviour) of third party consultants/Boards influences their perspective on this question.
• Did you find that bonuses were paid with an emphasis to head managers at the expense of the "workers", leading to dissatisfaction and high turnover?
This is a bit related to the first question above. As noted in my response above, pay disparities were outside the scope of our study. Having said that, it was not a source of complaints in our field study. Our study was set at the middle management level – so not at the top where high bonuses are paid, but also not at the junior employee level. I would think that pay disparities would have been raised by our middle manager cohort if they were a salient issue, but they were not. Note my points in answer to the first question though. It may be that our questions did not prompt discussion of this point.