If performance measures are perfect proxies for organizational goals,
A)sub-optimization will be enhanced.
B)sub-unit managers will strive to achieve organizational goals.
C)sub-units can all be decentralized.
D)residual income will rise.

Question

Quizplus · Accepted Answer

When performance measures are perfect proxies for organizational goals, sub-unit managers will strive to achieve organizational goals as they know that their performance is being measured against those goals. This helps in aligning sub-unit goals with the overall organizational goals and can reduce sub-optimization. However, decentralization of sub-units may or may not be possible depending on the nature of operations and the level of autonomy required to achieve organizational goals. Residual income may or may not rise depending on the effectiveness of the performance measures in aligning sub-unit goals with the overall organizational goals.

If Performance Measures Are Perfect Proxies for Organizational Goals