When employee incentives bias cost information: On the tension between decision-making and control

When cost information is biased by incentive systems, it speaks directly to a central debate in management accounting research: the tension between decision-making and control in organizations. Prior literature on how control initiatives bias cost information—and thereby impair decision-making—has primarily focused on the incentives of divisional managers, while largely overlooking the consequences of employee incentives. This study addresses this gap through an in-depth single case study of an incentive system for shopfloor workers in a manufacturing firm, examining how its design leads to biased cost information. Our findings contribute to the literature in two ways. First, the study extends our understanding of how an incentive system, serving a control role, can bias cost systems, serving a decision-making role, by demonstrating that not only managers’ but also employees’ incentives matter and showing how the design of the systems explains the bias effect. Second, it complements the cost accounting literature on time estimation, which has already shown how employees’ cognitive bias can distort time estimation while paying little attention to the bias that arises from employees’ incentives.