NON-FINANCIAL REWARD AND EMPLOYEE MORALE

Non-Financial Reward and Employee Morale



Non-Financial Reward and Employee Morale

Introduction

The management accounting literature reveals that changes in the environment and the technology of a company can lead to new decision making and control problems (Bruggeman & Slagmulder, 1995, 4). As organisations adapt to these developments, they must make sure that their management accounting systems (MAS) are designed to be congruent with the new control requirements (Chenhall, 2003, 11). Fullerton and McWatters (2002) underline that in the presence of innovative managerial practices (IMPs), firms need decision-making systems that incorporate bottom-up measures, as well as frequent reports of quality results. The empirical literature reviewed by Chenhall (2006), for example, shows that non-financial performance measures are more widely adopted in Just in Time (JIT) and Total Quality Management (TQM) settings.

Furthermore, traditional accounting measures (e.g., product costs, labour rates, material or labour variances and profitability) provide little information on some aspects of a company's business, such as quality, employee participation, production synchronisation, on-time deliveries, and customer satisfaction ([Chenhall, 1997, 15] and [Fullerton and MCWatters, 2002, 44]). This has contributed to the development and popularity of non-financial performance measures, particularly shop-floor measures ([Abdel-Maksoud et al., 2005] and [Banker et al., 1993]).

However, a large part of the human resources literature shows that shop-floor non-financial performance measures relating to 'employee morale', such as staff turnover, absenteeism and lateness, have been used in human resource management for a long time. They were some of the first measures to be used by human resource managers, and the first phenomenon studied by work psychologists ([Bezanson and Schoenfeld, 1925], [Kornhauser and Sharp, 1932] and [Motley, 1926]). Research studies indicate that lack of opportunity for shop-floor involvement was one of the major causes of job dissatisfaction and therefore staff turnover, absenteeism and lateness ([Hackman and Lawler, 1971] and [Hackman and Oldham, 1976]). The human resources literature highlights that the use of non-financial performance measures related to employee morale can be also explained by factors other than the unilateral deployment of IMPs, of which shop-floor involvement (a human resources consideration) is one.

Although studies have looked both at the effect on shop-floor involvement of adopting IMPs, (see, [Forza, 1996] and [Snell and Dean, 1992]), and at the use of shop-floor non-financial performance measures (SFNFPMs) (see, [Abdel-Maksoud et al., 2005] and [Chenhall, 2006]), we are not aware of any studies that have integrated all three factors. The above studies, in general, oversimplify the development of performance measures within organisations ([Burchell et al., 1980] and [Hopwood, 1987]) and ignore the use of these management accounting measures in other areas of organisational control. According to Hansen and Mouritsen (2007), a linkage between manufacturing practices and performance reporting systems exists: reporting manufacturing performance measures to line personnel is positively related to the implementation of JIT, teamwork and TQM practices, and worker morale is positively related to new manufacturing practices and performance information. Also, Hansen and Mouritsen (2007) have claimed that research dealing with the interface between operations management and management accounting is needed to clarify the role of management ...