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Business strategy, executive compensation and firm performance

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  • Yasheng Chen
  • Johnny Jermias

Abstract

type="main" xml:lang="en"> We investigate the impact of business strategy on the use of performance-linked compensation (PLC) and long-term incentive plans. We also examine the relation between strategy and compensation structure fit and performance. Using cluster and content analyses to classify a firm’s business strategy, we predict and find that product differentiation firms use a higher proportion of PLCs than cost-leadership firms. Furthermore, we find that the misfit between business strategy and compensation structure has a negative impact on performance. This study contributes to the executive compensation literature by recognizing that business strategy influences the compensation structure and that a strategy and compensation structure misfit negatively affects performance.

Suggested Citation

  • Yasheng Chen & Johnny Jermias, 2014. "Business strategy, executive compensation and firm performance," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 54(1), pages 113-134, March.
    • Handle: RePEc:bla:acctfi:v:54:y:2014:i:1:p:113-134
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    File URL: http://hdl.handle.net/10.1111/j.1467-629X.2012.00498.x
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