Performance Measurement and Incentive Compensation: An Empirical Analysis and Comparison of Chinese and Western Firms' Practices

Abstract

This paper describes the findings of a study aimed at providing a replication and extension in China of studies focused on incentive compensation practices of automobile retailers in the USA and the Netherlands. Rich, detailed data-sets from all three countries are analysed together and in comparison. As theory is not well developed at the level of detail of the data collected, the purpose of this study was primarily exploratory, to provide empirics that can lead to the development of theory. The findings show that Chinese firms are much more likely to provide incentive compensation than are Dutch firms, and they are even somewhat more likely to provide them than are US firms. But Chinese bonus plans are more likely to be subjective, rather than formula-based. In the situations where incentive payments are based on preset formulas, the Chinese firms’ systems are more like those used in the Netherlands than in the USA, with bonuses based on non-financial performance measures and with more complex performance–reward functions. Like managers in the US firms, but unlike managers in the Dutch firms, Chinese managers who receive some form of incentive compensation are more satisfied with their pay. The paper concludes with tentative explanations of the findings and suggestions for future research. European Accounting Review Vol. 20, No. 4, 639–667, 2011 Correspondence Address: Wim A. Van der Stede, Department of Accounting, London School of Economics, Houghton Street, London WC2A 2AE, UK. Tel.: +44 020 7955 6695. Email: w.van -der-stede@lse.ac.uk 0963-8180 Print/1468-4497 Online/11/040639–29 # 2011 European Accounting Association http://dx.doi.org/10.1080/09638180.2011.593293 Published by Routledge Journals, Taylor & Francis Ltd on behalf of the EAA. D ow nl oa de d by [ L SE L ib ra ry ] at 0 7: 26 2 8 N ov em be r 20 11

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Cite this paper

@inproceedings{Merchant2011PerformanceMA, title={Performance Measurement and Incentive Compensation: An Empirical Analysis and Comparison of Chinese and Western Firms' Practices}, author={Kenneth A. Merchant and Wim A. Van der Stede and Thomas Lin and ZENGBIAO YU}, year={2011} }