Strategic responses to Performance Measurement in Nonprofit ...

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typical for organisations which use the balanced scorecard as a tool for providing information
for managerial decision making, but not so much as a strategic management system.
Not unexpectedly the question if and how to link the balanced scorecard with an incentive
systems created some controversy. Six interview partners, most of them coming from big non-
profits which provide special care for persons with disabilities, were clearly in favour of
financial incentives. Other interview partners clearly objected to the implementation of
financial incentives and voiced that measurement imperfection might capsize the whole
change process. Sometimes the fear was voiced that there might be negative effects on the
intrinsic motivation of employees.
One interview partner remarked (translation provided by the author, see Greiling 2010):
“If I link our balanced scorecard with a financial incentive system, then I would endanger
the organisational change process that was triggered by the balanced scorecard. For our
organisation it is quite a success that we even started a process to come to a consensus as to
what our strategy actually is, deciding not only on priorities, but also reaching a consensus
of what not to do. Linking the balanced scorecard to an incentive system would lead to
endless discussions regarding the controllability and validity of the chosen performance
measures.”
As performance measurement in non-profits faces in many areas problems resulting from
measurement imperfections, the more sceptical position can be supported by the principal
agent theory. The multitasking problem as identified by Hollstroem and Milgrom (1991) and
problems identifying appropriate weighing factors (Pfaff et al. 2000) complicate the situation.
Limits of controllability principle which are voiced by Antle and Demski (1998) are most
likely to occur in areas with clients as the co-producers. Sometimes it is also argued that to
pay for performance is unethical in the non-profit sector (Oster 1995 and Herzlinger 1996).
In the interview the participants were ask what they regard as major obstacles they encounter
when implementing the balanced scorecard. The top-three ranking ones were that pay
regulations substantially limit the scope for financial incentives, followed by the answer that
the measurement of non-financial measures, especially outcome measures, is resource-