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Incorporating conflict into a manager’s compensation plan: Does it benefit or hurt innovations in management accounting?
Cardinaels,Eddy Chi,Qinwei Li,Wenjing Yin,Huaxiang
Cardinaels,Eddy
Chi,Qinwei
Li,Wenjing
Yin,Huaxiang
Abstract
Managers in firms often hesitate to pursue innovations in management accounting because these innovations have direct cost implications (extra tax, implementation costs, etc.), but generate uncertain long-term benefits. To encourage decision-makers to pursue these innovations, shielding their long-term compensation from these cost considerations might motivate more investments. In an experiment we test this presumption in a setting where finance executives, as decision-makers, decide about using an innovative management accounting system that produces uncertain long-term benefits, but at the same time increases direct costs. Contrary to the above intuition, our results show that compensating decision-makers on long-term performance metrics that include the costs of the innovation (instead of metrics that exclude them) increases their likelihood of adopting the innovative management accounting system. Our results offer important new insights for practice. Using performance metrics that include conflicting considerations in the compensation plan can prompt managers to pursue more innovations in management accounting.
Description
Publisher Copyright: © 2024 European Accounting Association.
Date
2025-11
Journal Title
Journal ISSN
Volume Title
Publisher
Research Projects
Organizational Units
Journal Issue
Keywords
Analytical thinking, Compensation design, Management accounting innovations, Recognition of conflict
Citation
Cardinaels, E, Chi, Q, Li, W & Yin, H 2025, 'Incorporating conflict into a manager’s compensation plan: Does it benefit or hurt innovations in management accounting?', European Accounting Review, vol. 34, no. 5, pp. 1885-1912. https://doi.org/10.1080/09638180.2024.2440430
License
info:eu-repo/semantics/openAccess