Business strategy,executive compensation and firm performance |
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Authors: | Yasheng Chen Johnny Jermias |
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Institution: | Beedie School of Business, Simon Fraser University, Burnaby, BC, Canada V5A 1S6 |
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Abstract: | 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. |
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Keywords: | Business strategy Compensation Cluster analysis Content analysis Performance D21 G32 M41 |
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