New professor Marcel van Rinsum investigates managerial incentives and performance reporting
Marcel van Rinsum has been appointed Professor of Accounting & Incentives at Rotterdam School of Management, Erasmus University (RSM). His chair, endowed by the Erasmus Trust Fund, studies inaccuracies in managers’ performance reports, and how these relate to compensation practices.
Preventing accounting scandals
“Bonus payments to managers are regularly under public scrutiny for being undeserved and the result of manipulated performance reports,” says Professor Van Rinsum. “Inaccuracy and dishonesty in performance reports can be influenced by many factors, including the design of the accounting and incentive system, social norms (culture), and managers’ personality characteristics.” He added that academics and practitioners have merely a basic understanding of some of these factors, and that much remains to be learned in this field. “I find this research area very inspiring. It’s vital to enhance our knowledge to reduce the likelihood of future accounting scandals and potential bankruptcies.” he says.
Prof. Van Rinsum explains that reliable reporting is not easily achieved for many reasons. “Incentives are often a necessity and can have positive effects, but linking pay to performance can not only spark motivation to perform well, but can also make managers short-term oriented or lead them to manipulate reported results.” He adds the problem is exacerbated by ambiguities in determining what the correct level of ‘performance’ or ‘profit’ is.
The role of controllers and auditors
In this light it is also essential to consider the role of controllers and auditors as the ‘watchdogs’ for accurate corporate reporting. The role of controllers is, however, moving more and more towards management support, and this can create pressure to report less accurately. Clarifying when this is most likely to form a problem is vital, Prof. Van Rinsum says.
Auditors also play a crucial role in assuring reliable reporting, but even they can be susceptible to biases and, unconsciously, influenced in their judgments by their own incentives, he argues. This has recently come under more scrutiny, and legislators (as well as auditing firms themselves) try to ensure that auditors act independently from their client firms. “Unconscious drivers of behaviour are, however, notoriously hard to detect and overcome, which presents an interesting challenge that motivates me to devote attention to this area. Experimental studies are an invaluable help in studying the effects of accounting systems and incentives, and this will continue to be my focus.”
Professor Van Rinsum’s research portfolio is well aligned with this theme and aims to enhance and disseminate knowledge in the field of accounting and incentives. His research has, for example, investigated when and how a company’s performance measurement system makes managers more (dis)honest, and how this is influenced by social norms and compensation formulas.
He has also investigated when pre-specified (versus more flexible) bonus formulas work well, and how competitive ’rank-order’ performance evaluation systems affect performance. Recently, his research has focused on how auditors’ incentives can sometimes unconsciously bias their judgments in favour of their client firms, especially after using a prescribed checklist, which reduces their critical state of mind, their effectiveness as ‘watchdog’ and the accuracy of corporate reporting.
About Marcel van Rinsum
Prof. Marcel van Rinsum obtained his PhD in this area of expertise in 2006. His research interests are concentrated in the fields of management accounting and control, and auditing, with a specific research focus on experimental studies investigating behavioural issues surrounding performance measurement, bonus systems and evaluation judgments. His work has been published in international journals, including Accounting and Business Research, The Accounting Review, Contemporary Accounting Research, European Accounting Review, Journal of Accounting Research, Long Range Planning, and Management Accounting Research. He currently serves on the editorial boards of Accounting and Business Research and The European Accounting Review.
He has taught courses in managerial accounting and control, at bachelor, master and post-experience levels. He currently teaches in RSM’s MSc in International Management/CEMS programme and the Cologne-Rotterdam Executive MBA. Additionally, he has taught (inter)national PhD courses on experimental research, and currently serves on the Institutional Review Board for experimental research at RSM.
Rotterdam School of Management, Erasmus University (RSM) is one of Europe’s top 10 business schools. RSM provides ground-breaking research and education furthering excellence in all aspects of management and is based in the international port city of Rotterdam – a vital nexus of business, logistics and trade. RSM’s primary focus is on developing business leaders with international careers who can become a force for positive change by carrying their innovative mindset into a sustainable future. Our first-class range of bachelor, master, MBA, PhD and executive programmes encourage them to become critical, creative, caring and collaborative thinkers and doers. Study information and activities for future students, executives and alumni are also organised from the RSM office in Chengdu, China. www.rsm.nl
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