Performance measurement system

Abstract: Problem: Although performance measurement systems (PMSs) in firms to a large extent regard motivation of the employees, motivation theory is rarely used as framework to study the use and implications of PMS. The starting point of our identified problem is the narrow theoretical framework used in prior research of formulation of PMS in firms, when only relying on agency theory. We consider the present conceptions used as a foundation for the results in theoretical and empirical research of PMS are a barrier for more efficient governance control in firms. Therefore we ask if agency theory alone solid enough as a framework to capture the complex behavioural aspects of PMS? Or does an incorporation of motivation theory extend the understanding of the use of PMS in firms? The answer has got important practical implications for all firms characterised by the separation of ownership and control. This brings us to the question: When evaluating and rewarding employees, which aspects are crucial to consider when formulating PMS in order to maximise the value of the firm? Purpose: The purpose of this thesis is to extend the understanding of the use of PMSs in banks. Contrary to prior research in this field, our purpose is to extend the conceptual framework by incorporating motivation theory extensively when analysing the use of PMS. In addition the results of this study are intended to give practical indications from a firm value maximizing perspective of which aspects that are crucial when formulating a PMS. Method: A qualitative method has been chosen to collect empirical data to our study. We have conducted interviews with our respondents working in the two banks. Moreover from our theoretical and empirical the conclusions are drawn in line with the approach of abduction. Conclusion: From what we have seen in our study there is no absolute answer, since there are many contingencies which affects how a PMS should be adapted to an organisation. However, due to four numbers of reasons we have come to the conclusion that the use of one atomistic measurement system, together with a profit-sharing system, is to prefer where all employees are rewarded equally.