The relation between executive time orientation and performance measurement

What is it about?

A research article in a book on proceedings of a conference, peer-reviewed. Purpose – This research presents empirical evidence on which performance measures are perceived as short-term and which as long-term oriented by company executives, and on whether any perceived performance measure-related time orientation affects the time orientation of these executives. In addition, the study explores which measures impact executive time orientation, regardless of how these measures are perceived. Methodology/approach – A survey was used to collect the perceptions of Chief Financial Officers (CFOs) in 109 companies listed in the Nasdaq OMX, the Nordic Stock Exchange. Performance measures include: stock price, earnings, returns, cash flow, success of development programs, EVATM, sales, and Balanced Scorecard, and the method employed was multiple regression. Findings – First, the CFOs perceived returns, sales, EPS and share price to have long time orientation. Second, the use of returns, share price and success of development programs as a major performance measure encourage the CFOs towards long-term behavior, whereas the use of cash flow encourages short-term behavior. Third, share price, earnings and EPS are measures, whose perceived time orientation affects the time orientation of executives. It is most likely due to this influence, that they have received major attention in public debates on the short time orientation of executives at the expense of other, more “silent” measures that also impact executive time orientation. Contextual factors strongly affect the results. Practical implications – The study assists in designing executive performance measurement systems that encourage desired time orientation. Originality/value – This study contributes to the fields of performance measurement and time orientation by recognizing the multidimensionality of the construct of time orientation and by showing how performance measures and their perceived time orientation influence executive time orientation. Keywords – Time orientation, performance measurement Paper type – Research paper

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Why is it important?

This study contributes to the fields of performance measurement and time orientation by recognizing the multidimensionality of the construct of time orientation and by showing how performance measures and their perceived time orientation influence executive time orientation.

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