The Impact of Performance Measurement Systems (PMS) on the Ethical Behaviour of Organisational Actors

BE133: Issues In Management Accounting

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Introduction

The last few decades have witnessed increasing concerns about performance measurement systems (PMS) and new public management (NPM) on ethics of employees and public servants (Ambalangode and Fie, 2016).  Further on, Kaptein (2017) explains that this concern may be because unethical behaviour in business has today become focus of the media attention globally in the wake of scandals in corporations such as Enron and Volkswagen. Furthermore, not only has it become an increasing issue in media domain, unethical behaviours in organisations have equally been identified as a relevant social issue which has demanded attention of researchers. Recent attention on employees’ ethics among researchers underscores need for better ethics in organisations. As such, this essay will discuss the role of performance measures in improving ethics of organisation’s employees. Similarly, Ayers (2015) contends that NPM reforms points to failures and inadequacies of the public sector performance and the problems squarely lying in nature and the public sector activities and traditional public administration. Consequently, NPM reforms entails running government organisations like private organisations thereby fostering public servants take on their roles as private sector’s employees. This essay based on general review of literature will discuss how PMS and NPM impacts employees’ behaviour. 

The impact of performance measurement systems (PMS) on the ethical behaviour of organisational actors

Burney at al. (2017) concedes that one of the main purposes of PMS is motivating and directing behaviours. In management control literature this is called the decision influencing role, and its purpose is to align behaviours of individuals with those of organisations. However, despite the success of PMS in directing employees’ behaviour positively, ethical behaviour and organisations have an uneasy and a troubling relationship (Michieli and Mari, 2014). Consequently, some of the shortcomings and benefits of the relationship between PMS and employees’ ethics will be discussed below.

The available literature on management control systems divides PMS into result-based performance management and the behaviour-based performance management (Spekle and Verbeeten, 2014). Result-based performance management entails less monitoring and directing of employees by the management, employees are paid by sales they make (commission), and evaluations are done by objective measures (Spekle and Verbeeten, 2014). Conversely, behaviour-based performance management is characterised by close monitoring of employees by management, fixed salaries of employees, and subjective evaluation of employees’ performance by management (Spekle and Verbeeten, 2014). See the table below for summary.   

Table 1: Characteristics of the result-based performance management and behaviour-based performance management.

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Exponents of behaviour-based performance management systems maintains that this system always impacts employees behaviour positively, is best used when there is considerable uncertainty in organisation market, when it is hard to attribute organisation outcomes to different units, when the employees are risk averse, intrinsically motivated, firm-specialised, and when managers have good idea about the behaviours leading to effective performance, (Tweedie and Holley, 2016). Conversely, exponents of result-based performance management argues that this system impacts employees behaviour positively and it is best used where firms are small, where subjective measures used for the evaluations is costly, where direct link between performance and employees effort is difficult to establish and when jobs are significantly complex (Michieli and Mari, 2014).

A study by Cushen and Thompson (2016) based on interview from a large multinational manufacturing company revealed that there was a positive relationship between PMS and organisational commitment, and job satisfaction. Moreover, they found a positive relationship between financial effectiveness, customer satisfaction effectiveness and behaviour-based performance management. Additionally, in their PMS study on Srilankan water board, Ambalangodage and Fie (2016), showed that there statistically existed significant positive level correlations between the PMS and the employees behaviour (r=.566, p=.000). Furthermore, analysis of variance (ANOVA) results revealed that linear combination of PMS and the employees’ behaviour is related to each other significantly (R2=.321, F=.371, F= (1,206) 97.11, and P= .000. their study, thus, explained that PMS is accounted primarily for approximately 32% of variance of the employees’ behaviour. See the table below for summary.

Table: 2 Regression Results of Standardized Estimates

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As studies discussed above shows, a lot of scholars maintains that a positive relationship between PMS and employees’ behaviour does exist. However, some scholars remain sceptical. Firstly, Michieli and Mari (2014) report that extensive research has concluded that incentives and also incomplete performance systems can motivate unethical behaviours which for instance are illustrated in Harvard Business School unintended consequences case of Nordstrom’s use of the sales incentives. In addition, Burney et al. (2017) examined if there are cases when the belief that PMS leads to employees behaving positively may not hold. Burney et al. (2017) hypothesised that if the claim that temptation in form of excessive individualism and self-interested behaviour is inherent to all organisations is true, then, they claimed, it is reasonable to maintain that using PMS system in ways that provides the employees with empowerment, autonomy, and freedom will be detrimental. This view was buttressed by Knights and Clarke (2017) who puts forth that theoretically, PMS which includes inconsistent or multiple objectives can be very complex for the employees to understand, promote overload of information and impose great risks on employees, resulting to a negative impact on employees’ behaviour. Further, DeNisi and Smith (2014) contend that a structured PMS become mechanistic while it needs reliance of employees’ experiences. Gaia and Jones (2017) and Hail et al. (2018) report that the use of PMS can create internal resistance as the new PMS or knowledge sharing disrupt organisation power structure. This view is in consonance with Burney et al. (2017) submission that introduction of new performance measures fosters employees’ counterproductive work behaviours (CWB).  These are deliberate actions/ behaviours that the employees take that contradict organisation’s goals and, thus, causes harm. Some common examples are withdrawal, aggression, hostility, absenteeism, sabotage and theft.    

Relationship between New Public Management (NPM) reforms and Public servants behaviour

This section aims to discuss the relationship between NPM reforms and ethical behaviours of public servants. Researching NPM reforms relationship with professional groups in public sector is to say the least, a daunting task. The scientific and political stakes are high and thus require varied and also in-depth investigations. This section is simply seeking to pinpoint how NPM reforms impacts the public servants’ behaviour positively (making them to behave ethically) and negatively (making them behave unethically).

According to Alonso et al. (2015) NPM consists of the deliberate changes to structures and the processes of the public sector organisations, the objective aim being to get them run better. Structural changes include: retrenchment or the downsizing, splitting or merging departments so as to improve the coordination thereby encouraging specialisation, privatisation, decentralisation and corporation (Alonso et al., 2015). Processes changes include: hands-on professional management, liberalisation, use of the market type mechanisms, modernisation of the service delivery mechanism for example e-government and others (Alonso et al., 2015).

Some reforms mentioned above, according to some scholars, hide the weaknesses of NPM. Hyndman et al. (2014) contend that decentralisation, privatisation and corporation in absence of strong autonomous independent monitoring institutions have aided corruption and abuses. Further on, Hyndman et al. (2014) concedes that collaborative government, networked governance, public-private partnerships cannot survive in absence of trust among partners. Relatedly, Rautiainen et al. (2017) asserts that better quality governance is impossible without competent, skilled and honest civil servants. Moreover, Ayers (2015) elucidates that to achieve high performance in public sector, monitoring and control of the civil servants by independent authorities is vital.

Additionally, opponents of NPM reforms, contends that negative impact of NPM reforms on ethics of the public servants is today strengthened by the highly publicised scandals in OECD and developing countries (Hail et al., 2018). Most of these examples are of individuals behaving unethically often also illegally thus causing financial difficulties to the organisations they work. Opponents of NPM reforms go further and claim that NPM rhetoric and reforms have provided civil servants not only the opportunity to behave unethically but with also a moral mind set to justify their behaviour (DeNisi and Smith, 2014). Moreover they posit that these reforms lead to collective or even a systematic unethical behaviour. Consequently, they propose that NPM reforms should be replaced by global governance or global public management (GG, GPM), knowledge public management or the knowledge governance (KPM, KG), electronic public management (E-PM) and so on (Knights and Clarke, 2017).

Conversely, the exponents of NPM reforms maintain that under NPM reforms, public sector organisations enables ethos of a continuous improvement in the levels and service delivery standards. This ensures civil servants are more committed to their organisations (Dejours, 2014). Furthermore, they postulate that NPM reforms advocates disaggregation of the bureaucratic units forming a more efficient and accountable public service where every civil servant is held accountable (Jansen, 2018). They call this ‘disaggregation of the public sector units’. It is efficient, they claim, because public servants are able to establish their objectives better and also work towards achieving those objectives more directly (Gaia and Jones, 2017). NPM reforms are accountable, they argue, because it replaces ‘faceless bureaucrat’ with managers that are visible and directly accountable to public (Grate and Guest, 2017).

Rautiainen et al. (2017) adds that, NPM reforms about quality and service management contain egalitarian elements that leads public servants to use stakeholder orientation standard in ethical decision making. Further on, he argues that unethical behaviour associated potentially with this standard, should in NPM-logic be neutralised by combining it with competitive interaction pattern which guarantee that efficiency standard will then counterbalance stakeholder orientation. Moreover, Alonso et al. (2015) put forth that under NPM, management is the base of the public sector activities and managers are held responsible of public sector performance. Further on, Rautiainen et al. (2017) states that NPM embodies important belief that the public sector should be subjected increasingly to rigorous performance measures, meaning that public sector organisations should pay more attention to what they are doing (their objectives). More so, when public managers are subjected to performance evaluation, it introduces displinary mechanisms compelling the public sector to focus on specific responsibilities and also undertake those tasks effectively and also efficiently (Rautiainen et al. (2017).

Similarly, Tweedie and Verbeeten (2014) echoed this assertion by arguing that NPM recommends private sector style of management, that enhances public sector service provision efficiency where public sector organisation conducts its activities in accordance with  the business principles ( that is, more like the public sector). Consequently, the public sector, under NPM, encompasses mechanisms such as more flexible working and performance related pay (Rautiainen et al. (2017).

Conclusion

This essay has highlighted how PMS and NPM reforms impacts employees’ behaviour both ethically and unethically. Exponents of PMS maintain that it leads to employees behaving positively by decision influencing role. This role makes employees behave ethically with mechanisms such as motivation of employees, and job satisfaction measures such as compensation. However, some critics argue that incentives such as compensation leads to individualism instead of team work thereby leading to self-centred behaviours which may be unethical. Additionally, others argue that PMS leads to counterproductive work behaviours and information overload which results to unintended consequences.

 Additionally, critics of NPM reforms hold that the NPM rhetoric provides public servants an opportunity to behave unethically and as such should be replaced by other measures such as Global Public Management (GPM). Conversely, supporters of NPM posit that these reforms hold public servants responsible for efficient service delivery and as such enables ethos of continuous improvement of employees’ behaviour to meet high standards of service delivery.

These two contradicting positions offered by PMS and NPM literature are rather unsatisfying. However, after analysing both sides of the debate, the tone of this essay suggests my strong advocacy for their implementation as they foster ethical behaviour.

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