Sooner or Later: The Effects of Timing on Managers’ Discretionary Weighting of Multiple Performance Measures Abstract

We investigate whether the weights placed on multiple performance measures for the purpose of determining performance-contingent pay depends on whether weights are determined before or after employees exert  effort. Analytic accounting research implicitly assumes that the timing with which discretionary weighting occurs will not affect the weights selected. However, we propose that while the overall objective in determining these weights (to guide employees toward desired actions) is unaltered by timing, the immediate objective of performance measure weighting does vary across time. Specifically, prior to employee effort, the immediate objective is to motivate employee effort in line with firm objectives. After employee effort, the immediate objective is to evaluate employee effort in a way that can be justified to the employee as fair. Thus, we expect, and find, that evaluators weight congruent measures more heavily when weightings are determined ex ante (before employee effort) and weight precise measures more heavily when weightings are determined ex post. This effect is mitigated when ex post measure outcomes indicate relatively favorable outcomes for congruent measures.