Right on the money? The contingent effects of strategic orientation and pay system design on firm performance

• 成果类型: Article
• 署名作者: Tenhiala, Aino; Laamanen, Tomi
• 署名单位: IE University; University of St Gallen
• 刊物名称: STRATEGIC MANAGEMENT JOURNAL
• ISSN/ISSBN: 0143-2095
• DOI: 10.1002/smj.2953
• 发表日期: 2018
• 页码: 3408-3433
• 关键词: CONTINGENCY THEORY; incentives; pay system; performance; strategic orientation

摘要

Research Summary: This article extends prior research on the performance implications of the fit between a firm's strategic orientation and its pay system design. Whereas prior research has shown that matching the pay system design to the strategic orientation of the firm generally contributes to higher performance, most studies have examined the pay systems of the upper echelons and employees separately. Based on an analysis that accounts for both horizontal and vertical pay dispersion, we find that, whereas growth-oriented firms (prospectors) tend to benefit from high horizontal pay dispersion, efficiency-oriented firms (defenders) perform better with high vertical pay dispersion and low relative base pay. Overall, our findings contribute to an improved understanding of how to optimize the pay systems of firms with different strategic orientations. Managerial Summary: We study how the optimal configuration of the overall pay system differs between firms that pursue growth-oriented and efficiency-oriented strategies. Our results show that growth-oriented firms (prospectors) benefit from pay structures with relatively large pay differentials horizontally between employees based on ability, effort, and results. Efficiency-oriented firms (defenders), on the other hand, benefit from pay structures with relatively larger differences in pay across organizational levels vertically. Our findings suggest that while defenders should pay special attention to average pay levels to avoid over compensating their employees relative to competitors, prospectors should pay attention to the CEO-employee pay differentials to avoid overcompensating executives relative to employees. Overall, our findings provide further evidence on the importance of matching the pay system design to a firm's strategy.