Measuring general managers’
Market, accounting and
Kenneth A. Merchant
Leventhal School of Accounting, University of Southern California,
Los Angeles, California, USA
Purpose – This paper discusses how to choose a measure or set of measures for the purposes of
evaluating and rewarding general managers’ performances.
Design/methodology/approach – The paper describes a set of criteria that is useful for evaluating
any measure or set of measures. Then it applies the criteria to an evaluation of three measurement
alternatives in common use at general management organization levels: market measures, accounting
measures, and combinations of measures.
Findings – The paper shows that all of the measurement alternatives fail to satisfy one or more of the
evaluation criteria and, hence, lead to less than optimal outcomes. But it also shows that some
alternatives are better than others in speciﬁc situations.
Originality/value – While comprehensive sets of evaluation criteria have been applied to ﬁnancial
accounting choice issues, this is the ﬁrst such approach in management accounting. This approach can
lead to improved performance measurement system choices. It can also be used to guide future
research because the analysis also reveals major gaps in our knowledge about the qualities of
performance measures in common use.
Keywords Measurement, Performance, General management, Market yield, Accounting systems,
Paper type General review
A commonly cited management axiom is “What you measure is what you get.” This
axiom works in practice because performance measures are linked to any of a number
of incentives, both extrinsic and intrinsic, that employees value or penalties that they
wish to avoid. People respond to these incentives/penalties. The measures, then, play
valuable motivational, or decision inﬂuencing, roles.
But what performance measure (or measures) should be used? At general manager
levels of proﬁt-seeking ﬁrms – both at the corporate and operating unit levels – the
organizational role that is the focus of this paper, the managers’ responsibilities are both
broad and varied. Reﬂecting that variety, we see that the list of measures used to
motivate and evaluate general managers’ performances is long. These measures can be
The current issue and full text archive of this journal is available at
Helpful comments were provided by numerous participants at the 4th Asia Paciﬁc
Interdisciplinary Research Conference (APIRA), held in Singapore, the International
Management Accounting Conference (IMAC) III, held in Bangi, Malaysia, and the 2nd
Advances in Management Accounting (AIMA) Conference, held in Monterey, California, where
this paper provided the basis for plenary talks, and by Mark DeFond, Trevor Hopper, Lee Parker,
Tatiana Sandino, K.R. Subramanyam, Wim Van der Stede, and Mark Young.
Accounting, Auditing &
Vol. 19 No. 6, 2006
q Emerald Group Publishing Limited