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Strategic orientations, incentive plan adoptions, and firm performance: evidence from electric utility firms
Author(s) -
Rajagopalan Nandini
Publication year - 1997
Publication title -
strategic management journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 11.035
H-Index - 286
eISSN - 1097-0266
pISSN - 0143-2095
DOI - 10.1002/(sici)1097-0266(199711)18:10<761::aid-smj906>3.0.co;2-2
Subject(s) - incentive , principal–agent problem , cash , incentive program , business , discretion , strategic planning , marketing , industrial organization , sample (material) , microeconomics , electric utility , control (management) , economics , finance , management , corporate governance , chromatography , chemistry , political science , law
This study examines the performance implications of the fit between strategic orientations and incentive plan characteristics. Research hypotheses are based on a framework that draws upon managerial discretion and agency theories to identify the links between firm strategy, managerial motivation and control, managerial risk‐bearing, and incentive plan characteristics. A pooled cross‐sectional, time series research design is used to test hypotheses in a sample of 50 electric utility firms. Consistent with theory, results indicate that annual bonus plans that use cash incentives and accounting measures of performance lead to better performance among firms with Defender strategic orientations. In contrast, firms with Prospector strategic orientations realize performance benefits when they adopt stock‐based incentive plans and use market measures to evaluate managerial performance. © 1997 John Wiley & Sons, Ltd.