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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

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  • Daniel Han Ming Chng
  • Matthew S. Rodgers
  • Eric Shih
  • Xiao‐Bing Song

Abstract

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.

Suggested Citation

  • Daniel Han Ming Chng & Matthew S. Rodgers & Eric Shih & Xiao‐Bing Song, 2012. "When does incentive compensation motivate managerial behaviors? An experimental investigation of the fit between incentive compensation, executive core self‐evaluation, and firm performance," Strategic Management Journal, Wiley Blackwell, vol. 33(12), pages 1343-1362, December.
    • Handle: RePEc:bla:stratm:v:33:y:2012:i:12:p:1343-1362
    DOI: 10.1002/smj.1981
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    3. Chen, Yi-Min & Liu, Hsin-Hsien & Yang, Yung-Kai & Chen, Wei-Hua, 2016. "CEO succession in family firms: Stewardship perspective in the pre-succession context," Journal of Business Research, Elsevier, vol. 69(11), pages 5111-5116.
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    5. Sunkee Lee & Philipp Meyer-Doyle, 2017. "How Performance Incentives Shape Individual Exploration and Exploitation: Evidence from Microdata," Organization Science, INFORMS, vol. 28(1), pages 19-38, February.
    6. Yusuf, Fatima & Yousaf, Amna & Saeed, Abubakr, 2018. "Rethinking agency theory in developing countries: A case study of Pakistan," Accounting forum, Elsevier, vol. 42(4), pages 281-292.
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    8. Joyce C. Wang & Lívia Markóczy & Sunny Li Sun & Mike W. Peng, 2019. "She’-E-O Compensation Gap: A Role Congruity View," Journal of Business Ethics, Springer, vol. 159(3), pages 745-760, October.
    9. Haeyoung Koo & Choelsoon Park, 2018. "Foundation of leadership in Asia: Leader characteristics and leadership styles review and research agenda," Asia Pacific Journal of Management, Springer, vol. 35(3), pages 697-718, September.
    10. Stefano Cabras & J. D. Tena, 2023. "Implicit institutional incentives and individual decisions: Causal inference with deep learning models," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(6), pages 3739-3754, September.
    11. Denton Collins & Gary Fleischman & Stacey Kaden & Juan Manuel Sanchez, 2018. "How Powerful CFOs Camouflage and Exploit Equity-Based Incentive Compensation," Journal of Business Ethics, Springer, vol. 153(2), pages 591-613, December.
    12. Heinz, Matthias & Khashabi, Pooyan & Zubanov, Nick & Kretschmer, Tobias & Friebel, Guido, 2017. "Heterogeneous Effects of Performance Pay with Market Competition: Evidence from a Randomized Field Experiment," CEPR Discussion Papers 12474, C.E.P.R. Discussion Papers.
    13. Zhen Wang & Haoying Xu, 2019. "When and for Whom Ethical Leadership is More Effective in Eliciting Work Meaningfulness and Positive Attitudes: The Moderating Roles of Core Self-Evaluation and Perceived Organizational Support," Journal of Business Ethics, Springer, vol. 156(4), pages 919-940, June.
    14. Karen Maas, 2018. "Do Corporate Social Performance Targets in Executive Compensation Contribute to Corporate Social Performance?," Journal of Business Ethics, Springer, vol. 148(3), pages 573-585, March.
    15. Cheng-Feng Cheng, 2020. "Revisiting Internal Marketing for the Determinants of Job (Dis)Satisfaction by Using Asymmetric Approach," Sustainability, MDPI, vol. 12(9), pages 1-15, May.

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