Navigating the Digital Transformation Terrain: Insights into the Interplay of Compensation, Incentives, and Managerial Behavior

In the fast-evolving landscape of the modern knowledge economy, digital transformation has emerged as a pivotal strategy for organizational survival and growth. This research, slated for submission to the Journal of the Knowledge Economy, delves deep into the intricate dynamics of knowledge-driven digital transformation within organizations. Grounded in technology management and organizational behavior, this study sheds light on the critical role of monetary compensation and on-the-job consumption incentives in motivating managerial personnel to spearhead digital transformation initiatives. The study reveals a nonlinear relationship between monetary compensation and digital transformation outcomes, challenging conventional wisdom and introducing the concept of an optimal compensation level. Furthermore, it explores the mediating factor of managerial myopia, elucidating how short-term goals can sometimes clash with long-term digitalization objectives. These findings expand the theoretical foundations of agency theory and managerial entrenchment theory. For practitioners, the research underscores the importance of crafting incentive compensation systems that balance short-term and long-term goals. Equity-based incentives are endorsed as a more effective means to promote digital transformation. Policymakers can leverage these insights to encourage digitalization at the corporate level by advocating for equity-based compensation schemes and reinforcing strong corporate governance practices. This study offers a comprehensive framework for understanding the complex interplay of compensation, incentives, and managerial behavior in the context of digital transformation. It advances theoretical models and provides actionable guidance for managers, investors, and policymakers navigating the transformative journey in the knowledge-driven economy. As organizations strive to remain competitive, this research offers a roadmap for leveraging knowledge and innovation to thrive in the digital era.