Toward a contingency theory of compensation strategy

This paper develops several propositions that link compensation strategy and the effectiveness of the compensation system. The underlying argument is that effectiveness at realizing intended pay strategies depends significantly on the existence of a match between compensation strategies, organization and environment. These propositions are tested in a sample of 33 high tech and 72 non-high tech firms or business units in the Boston Route 128 area. Respondents are managers responsible for compensation policies in these firms or business units. The relationships among compensation strategies, organization characteristics and environment are explored. The findings may help researchers conceptualize, and practitioners manage, the relationship between reward processes and strategy in organizations.     

Equity‐based incentives and collaboration in the modern multibusiness firm

Research summary : This paper examines the role of equity‐based incentives in fostering cross‐business‐unit collaboration in multibusiness firms. We develop a formal agency model in which headquarters offers equity and profit incentives to business‐unit managers with the objective of maximizing total expected firm returns. The resulting compensation contract provides a rich mechanism for aggregating value from collaborative interactions across business units, aligning managers' efforts with the firm's growth prospects and organization structure and managing the dual risks in profits and firm market value. The inclusion of equity incentives elicits higher levels of own‐unit and collaborative efforts over the profits‐only contract. Our results suggest that equity‐based incentives are most beneficial when profitability is uncertain relative to long‐term growth prospects, in firms pursuing related diversification strategies, and in periods of rising equity markets. Managerial summary : Equity‐based compensation such as restricted stock grants and options are increasingly common, not only for CEOs and other top executives, but also for business unit managers and other non‐C‐suite employees. The paper studies the role of such “global” incentives in enabling multibusiness firms to benefit from cross‐unit collaboration. Results from our model show that managerial contracts that include appropriate levels of equity incentives, in addition to profit‐based incentives, generate higher own‐unit and collaborative efforts. We also find that equity incentives are likely to be most beneficial for large firms in high‐growth sectors, for firms pursuing a related diversification strategy, and in periods of rising stock markets. The model can also provide useful guidance on designing return‐maximizing compensation contracts for business unit managers in different firm, organizational, and industry contexts. Copyright © 2015 John Wiley & Sons, Ltd.     

Innovation and Product Development Strategies in the Italian Motorcycle Industry

The motorcycle industry in Italy offers fertile ground for anyone interested in developing a better understanding of the role innovation plays in enhancing a firm's competitive position. This industry includes both domestic and Japanese firms, with companies ranging from high-volume manufacturers to specialty or niche producers. Firms trying to gain a competitive edge in this crowded field must contend with not only advances in product and process technology, but also the whims of fashion. In a survey of top-level marketing and product development managers from eight leading firms in the Italian motorcycle industry, Moreno Muffatto and Roberto Panizzolo explore the innovation models these firms employ to enhance their competitive position. Their study has the following objectives: categorizing the various competitors in terms of their product and market strategies and their product development and innovation strategies; highlighting differences between the methods of Italian and Japanese firms competing in this market; analyzing the relationships between firms, as well as the roles suppliers play in the various innovation strategies; and identifying the various organizational models employed by the firms in this industry. Different product and market strategies are identified on the basis of three variables: total production volume, the number of different products offered, and the number of different engine capacities offered. Using these variables, the companies in the study are categorized as volume producers, specialists, or niche specialists. The firms are further differentiated on the basis of the relative emphasis each places on product technology and design, product innovation, product variety, and time-based competition. In the firms studied, partnerships play a key role in new product development. Nearly every firm participates in joint projects, most often involving development of either an entire vehicle or an engine. Other partnerships involve firms in countries that offer emerging markets for the motorcycle industry. Organizational structures and strategies employed by the volume producers in this study include: the large product leader, who oversees concept definition and product planning; the project leaders group, which coordinates all phases of development, including activities assigned to external groups; the project managers matrix, a matrix organizational structure with a strong product orientation; and the business unit program manager, who oversees all projects within an independent business unit.     

Product‐market strategy and the marketing capabilities of the firm: impact on market effectiveness and cash flow performance

We report on two studies (a single and a multi‐industry) that empirically investigate a nomological network of relationships between strategic business unit product‐market strategy (differentiation, cost‐focus, and product‐market scope), marketing capabilities (architectural and specialized capabilities, as well as their integration), and business unit performance (market effectiveness and subsequent one‐year objective cash flow), along with a series of controls. Addressing important lacunae in the resource‐based view our main research objective is to augment understanding of how critical firm‐level marketing capabilities enable the realization of strategy, thus, further advancing both the resource‐based view and more recent capabilities theorizing. Specifically, we test seven hypotheses and find strong evidence that both architectural and specialized marketing capabilities, and their integration, positively mediate the product‐market strategy and derived business unit performance relationship. In contrast to many extant studies, both survey and objectively measured data are combined, and because the secondary data collected contains both resource‐level (input) data and subsequent one‐year financial data, a higher level of confidence may be attributable to our findings. Copyright © 2009 John Wiley & Sons, Ltd.     

How sensitive is executive compensation to organizational size?

Prior empirical research has documented a large cross-sectional correlation between the level of executive pay and firm size. In contrast, this paper examines the association between percentage changes in executive compensation and percentage changes in organizational size. We analyze compensation and size data for executives at several levels of the corporate hierarchy for a sample of 303 firms. Our results indicate that the correlation between compensation and size is much smaller, although still statistically significant, in changes than in levels. This suggests that changes in an executive's compensation are not primarily driven by changes in organizational size.     

Effectiveness of Individual and Aggregate Compensation Strategies

Based on a sample of 175 scientists and engineers, this study shows that individual-based rewards (either in the form of merit pay or individual bonuses) are perceived as less effective than aggregate incentive strategies for R & D workers. The pay effectiveness measures used here include pay satisfaction, propensity to leave, project performance, and individual performance. All things considered, team-based bonuses are perceived as the most effective rewards in an R & D setting. The findings also indicate that employees with a low willingness to take risks are more likely to experience withdrawal cognition if they work for a firm that relies on variable compensation.     

Generic business strategies,organizational context and performance: An empirical investigation

Some of the common organizational requirements prescribed for generic business strategies of cost leadership and differentiation are empirically examined in a study consisting of 69 business units. The results suggest the fit between business unit strategy and the internal organization of multi-business companies does have an effect upon business unit performance.     

Generic manufacturing strategies: A conceptual synthesis

This paper provides a conceptual framework that links manufacturing to business unit strategy and focuses on developing the notion of ‘generic manufacturing strategies’ at the strategic business unit (SBU) level. Specifically, an explicit conceptual link is drawn between ‘generic’ business unit strategies and ‘generic’ functional structures in manufacturing. It is proposed that the alternate manufacturing structures implicitly represent ‘generic manufacturing strategies’. Drawing on ideas and concepts from the business strategy literature and manufacturing literature the paper links Porter's generic strategy framework to a complementary manufacturing structure framework that uses three dimensions: process structure complexity, product line complexity, and organizational scope. Viewed from different perspectives, the ‘manufacturing contingency theory’ concepts presented implicitly in the paper can be viewed as an extension of classic research on the interdependence between strategy and structure. The frameworks developed here provide a partial synthesis of knowledge in the broader disciplines of engineering and management without sacrificing academic rigor and practitioner relevance.     

Factors influencing the relative importance of marketing strategy creativity and marketing strategy implementation effectiveness

It seems logical that performance is maximized when a business produces a creative marketing strategy and achieves marketing strategy implementation effectiveness. However, cultural tensions and resource competition may make it difficult, or impossible, to achieve both. Contingency theory suggests that market and/or firm level influences may exist that make one or the other more important. Thus, it is important for researchers to investigate those conditions so that we can provide managers with guidance regarding where to allocate their resources. The study reported in this article assesses the impact that environmental conditions and business unit strategy have on the relative importance of marketing strategy creativity and marketing strategy implementation effectiveness. We discuss implications for managers and scholars.     

When does incentive compensation motivate managerial behaviors? An experimental investigation of the fit between incentive compensation,executive core self-evaluation,and firm performance

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.     

Corporate tournaments and executive compensation: Evidence from the U.K.

This study tests the implications of tournament theory using data on 100 U.K. stock market companies, covering over 500 individual executives, in the late 1990s. Our results provide some evidence consistent with the operation of tournament mechanisms within the U.K. business context. Firstly, we find a convex relationship between executive pay and organizational level and secondly, that the gap between CEO pay and other board executives (i.e., tournament prize) is positively related to the number of participants in the tournament. However, we also show that the variation in executive team pay has little role in determining company performance. Copyright © 2001 John Wiley & Sons, Ltd.     

Corporate and industry effects on business unit competitive position

We partition the variances of market shares, which we use as surrogates for competitive position, of the business units of all public manufacturing companies available in the Trinet data base into industry factors, corporate parent‐specific factors, and business unit‐specific factors. Our results differ somewhat from Rumelt's (1991) , which decomposed variances in profitability. We find that corporate parent effects on market share are considerably greater than zero when lines of business are defined more narrowly, when small business units are included, and when firms are medium‐sized. Our results suggest that the relative importance of corporate, industry, and business unit effects depends on the types of criteria, such as the level of industry aggregation, whether small business units are included, and firm size, that are used to construct samples. Copyright © 2000 John Wiley & Sons, Ltd.     

The market share-profitability relationship: An empirical assessment of major assertions and contradictions

While previous research on the relationship between market share (MS) and business profitability (BP) has found a positive relationship, its nature (i.e. direct versus spurious), its context-specificity, and the validity of MS as a predictor of BP have not been adequately addressed. Employing path analysis, this study examined the nature of this relationship across a taxonomy of homogeneous environments. The major findings were that (1) the association between MS and BP is context-specific; (2) both direct and spurious relationships exist, and their relative strengths vary across environments; and (3) the validity of MS as a predictor of BP is context-specific. Further, key firm conduct variables accounting for the spuriousness have been identified. Finally, implications of these findings for managers pursuing market share as a goal are discussed.     

The performance implications of resource and pay dispersion: The case of Major League Baseball

Research summary: Building on research in strategic management that has found that high levels of pay dispersion are detrimental to firm performance; we examine the potential dependence of those findings on similar dispersion in the latent potential of those resources to contribute to performance. We find that congruence between resource value dispersion and pay dispersion is positively related to organizational performance. Additionally, we find that this congruence moderates the effects of both organizational resources and organizational pay levels on organizational performance. These findings contribute to a growing line of research that explores the implications of key human resource value and pay combinations for organizational performance. Managerial summary: While differences in income between key employees (i.e., dispersed pay) can instill feelings of inequity and be detrimental to organizational performance, such differences may also increase the odds of attracting star talent and help performance. In the context of Major League Baseball (MLB), we find that performance improves when dispersions in pay are congruent with the dispersion in the contributions that team members make to their organizations. We also find that the positive effects on performance of higher total pay and of level of organizational talent are enhanced by congruent pay and contribution dispersions. These findings suggest organizations may benefit from consistent dispersions in pay and talent and that important contributions by key organizational members need to be visible when organizations have dispersed pay structures. Copyright © 2016 John Wiley & Sons, Ltd.     

Communities of Practice versus Organizational Climate: Which One Matters More to Dispersed Collaboration in the Front End of Innovation?*

Dispersed collaboration provides many benefits such as members' closeness to local cultures and markets and reachability of talent worldwide. Hence, it is no surprise that dispersed collaboration is frequently being used by product development teams. A necessary but not sufficient condition for innovation performance is the sharing of tacit, non‐codified and explicit, codified knowledge by the team. Situated learning theory, however, predicts that tacit knowledge sharing will be largely prevented by “decontextualization.” Therefore, increasing usage of dispersed collaboration will decrease levels of tacit knowledge—crucial to innovation and organizational performance—in the business unit. This research investigates the moderating role of mechanisms believed to enable tacit knowledge transfer in the front end of innovation. Using data from 116 business units, the moderating role of communities of practice and organizational climate on the relationship between the proficiency of dispersed collaboration and front end of innovation performance is investigated. Encouragement of communities of practice is found to moderate the relationship between proficiency of dispersed collaboration and front end of innovation performance on the business unit level. More specifically, proficiency of dispersed collaboration is not related at all to front end of innovation performance in business units with low support for communities of practice; but a positive relationship exists in business units with high support for communities of practice. This study does not provide support for the moderating effect of organizational climate on the relationship between proficiency in dispersed collaboration and front end of innovation performance. However, supportiveness of climate has a significant direct effect on front end of innovation performance. The findings of this study suggest that managers should simultaneously invest in increasing proficiency in dispersed collaboration and supporting communities of practice. Either one by itself is insufficient. Because of its significant direct effect, managers should also nurture an open climate favoring risk taking, trust, and open interaction.     

Diversification,coordination costs,and organizational rigidity: evidence from microdata

This paper examines the impact of coordination costs and organizational rigidity on the returns to diversification. The central thesis is that coordination costs offset economies of scope, while organizational rigidity increases coordination costs, further constraining economies of scope. The empirical tests of this proposition identify the effects of coordination and organizational rigidity costs on business unit and firm productivity, using novel data from the Economic Census on taxicab and limousine firms. The key results show that coordination and organizational rigidity costs are economically and statistically significant, while organizational rigidity itself accounts for a 16 percent decrease in paid ride‐miles per taxicab in incumbent diversifiers, controlling for the other costs and benefits of diversification and incumbency. The findings suggest that coordination costs, in general, and organizational rigidity costs, in particular, limit the scope of the firm. Copyright © 2010 John Wiley & Sons, Ltd.     

Who’s Displaced First? The Role of Race in Layoff Decisions

We test empirically the proposition that race significantly affects an employee's layoff chances. Using data from a financial firm (N = 8918), we find that whites are less likely to be laid off than nonwhites and that, among nonwhites, Asians are less likely to be laid off than blacks or Hispanics. These findings are statistically significant after controlling for structural factors (business unit, occupation, and job level) and individual characteristics (tenure and performance rating). A similar pattern of racial differences exists in other employment practices more actively monitored by the firm, including promotions, pay raises, and performance ratings. Yet these differences are smaller than those in layoffs and are significant for blacks only, not for Hispanics. Our findings suggest that monitoring personnel decisions can reduce racial inequality. Furthermore, our findings highlight that racial differences in employment outcomes vary among minority groups.     

Determinants of Differential Rent Changes: Mean Reversion versus the Usual Suspects

This is a hedonic regression study of the 2001–2004 and 2004–2007 rent growth of 18,000 rental units. Which variables matter: Location? Age? Rent level? Occupancy duration? Structure type? The answers deepen understanding of the rental market and help guide statistical agency practice. We document significant rent stickiness. Initial relative rent level is the best predictor, mainly because of mean reversion. (This problem likely extends well beyond the present study.) “Location” comes in second, though often not statistically significant: the relative value of location is persistent. Age and occupancy duration are also notable. Our findings support statistical agency practices.     

The Expanding Concept of Just Compensation and the Role of the Appraiser

Compensation for injury to business profits in eminent domain actions has long been the focus of controversy. Historically, the federal and state courts explicitly excluded profits or goodwill from a determination of an award. Under this scheme the measure of compensation quickly settled on the market value of the condemned realty. Where injury to profits was especially evident, the courts sometimes allowed future returns to the business to be included as a factor which would influence the market value. They also developed, in some states, the "specialty" doctrine where the business was unique in any number of ways. Still, the measures of compensation adopted in these cases may have been inadequate to return the business owner to the same financial position as before a taking.
In this paper, we review an expanded theory of just compensation currently emerging in the courts and indicate the measure of compensation necessary to effectively return the business owner to the same financial position after a taking as before. We also show that traditional awards have been less than adequate in cases where the cash flows accruing to a business are dependent, in some fashion, on the expropriated realty.
Finally, we indicate the nature of awards under a jurisdiction which is unique in the sense that it explicitly requires consideration of all elements of loss resulting from expropriation of business properties. Those awards represent a departure from previous compensation measures and conform to those indicated by the theory developed in this paper. The role of the appraiser is outlined under this expanded system of compensation.     

论煤炭企业营销体系中的“三大支柱”

煤炭企业作为市场经营活动的主体 ,在竞争的环境下必须搞好煤炭营销“龙头”工作。煤炭市场营销是一个完整而科学的体系 ,其中的煤炭市场环境分析、用目标市场选择、煤炭营销组合设计则是这一体系中的“三大支柱” ,必须予以高度重视 ,以保证煤炭产品的适销对路和运销过程的快速、高效