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When does incentive compensation motivate managerial behaviors? An experimental investigation of the fit between incentive compensation, executive core self‐evaluation, and firm performance
Author(s) -
Chng Daniel Han Ming,
Rodgers Matthew S.,
Shih Eric,
Song XiaoBing
Publication year - 2012
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/smj.1981
Subject(s) - incentive , compensation (psychology) , salary , situational ethics , executive compensation , core (optical fiber) , business , microeconomics , industrial organization , marketing , psychology , economics , social psychology , computer science , market economy , telecommunications
We develop and test an integrative model that examines the fit between compensation schemes, executives' characteristics, and situational factors. We propose that a fit among all three factors is crucial to motivate desirable managerial behaviors. Using a specially designed management simulation, our study demonstrates that the effectiveness of incentive compensation to motivate managerial behaviors depends on executives' core self‐evaluation and firm performance. Our results show that, relative to fixed salary compensation, executives with higher core self‐evaluation respond to incentive compensation with greater perseverance, competitive strategy focus, ethical behavior, and strategic risk taking during organizational decline. However, these interaction effects are not present during organizational growth. Our theory and empirical evidence provide significant insights into the complex relationships among compensation schemes, executives' characteristics, firm performance, and managerial behaviors. Copyright © 2012 John Wiley & Sons, Ltd.