The effect of fairness perception of performance measurement in the balanced scorecard environment

Abstract

Prior studies have identified problems with traditional management control and performance measurement systems to evaluate managerial and business unit performance (Kaplan and Norton, 1996; Olve, Roy, and Wetter, 1999). One response has been the use of the balanced scorecard (BSC) to provide a more causal-linked comprehensive set of financial and non-financial measures of performance. However, recent research suggests the use of the BSC has its own difficulties including one referred to as common-measure bias (Lipe and Salterio, 2000); accordingly the benefits of the BSC cannot be fully exploited. Drawing on organisational justice theories, this study proposes a fairness model to help overcome the problem of common-measure bias found by Lipe and Salterio (2000) in the BSC environment. Using the concepts of fairness perception, divisional/unit manager participation and interpersonal trust between the parties involved in the performance evaluation process, the model investigates issues associated with common-measure bias in the context of a BSC environment. This fairness model provides a review of the relationship between the drivers of fairness perception, which include participation, procedural justice, and distributive justice on the performance measurement in a BSC environment, and the interpersonal trust between parties involved in the performance evaluation process. The effects of those variables on managerial performance also are considered.

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