The Contagion Effect in Performance Evaluations in the Context of Balanced Scorecards

This study explores in the context of the use of the balanced scorecard (BSC) by management, whether the use of both financial and nonfinancial measures by top managers in their evaluations influences middle-level managers’ evaluations of their subordinates. This study uses a 2×2 experimental design where the subjects (MBA students) were asked to evaluate the performance of two lower-level managers under two different manipulation conditions. Subjects acted as middle-level managers of a hypothetical company. They were provided with the same performance information of two low-level managers under both conditions. However, under one condition, subjects were provided with additional information: the top management's evaluation style which used both financial and nonfinancial measures in their performance evaluations. No additional information was provided to subjects under the other manipulation condition. We also manipulated two performance information patterns of the two low-level managers. We predict that if middle-level managers are aware that the top manager uses both financial and nonfinancial measures in the BSC to evaluate their performance, middle-level managers would develop a mindset in which they will evaluate subordinates in a similar style, evaluating their subordinates on the basis of both financial and nonfinancial measures. The results of this study support the hypotheses. The findings of this study suggest that the contagion effect exists in the use of the BSC in performance evaluations.