Business strategy and top management compensation: The mediating effects of employment risk, firm performance and size

Abstract We compare top management compensation among prospector, defender, and analyzer strategic types, and the effects of differences in managers' employment risks, firm performance, and firm size. Prospectors performed better and they paid their top management group more than did analyzers. They were also bigger, their managers faced more employment risks, and they paid their CEOs more than did defenders or analyzers. Significant differences were found among the three strategic types in managers' employment risks, firm performance, and size. On average, the strategic types whose managers faced greater employment risks also compensated their top management group more, providing evidence of a positive relationship between risk and return at the level of strategic types. Confirming previous findings, firm size constituted the greatest influence on top management compensation.

[1]  Anne T. Coughlan,et al.  Executive compensation, management turnover, and firm performance: An empirical investigation , 1985 .

[2]  Richard A. Lambert,et al.  How sensitive is executive compensation to organizational size , 1991 .

[3]  Henry L. Tosi,et al.  Managerial Control, Performance, and Executive Compensation , 1987 .

[4]  Paul J. Stonich,et al.  Using rewards in implementing strategy , 1981 .

[5]  Francis J. Yammarino,et al.  Theory testing in organizational behavior : the varient approach , 1987 .

[6]  Anisya S. Thomas,et al.  THE PERFORMANCE IMPACT OF STRATEGY - MANAGER COALIGNMENT: AN EMPIRICAL EXAMINATION , 1991 .

[7]  William B. Stevenson,et al.  Managerial Compensation Based on Organizational Performance: A Time Series Analysis of the Effects of Merit Pay , 1985 .

[8]  H. Thomas,et al.  The concept of stable strategic time periods in strategic group research , 1987 .

[9]  R E Miles,et al.  Organizational strategy, structure, and process. , 1978, Academy of management review. Academy of Management.

[10]  Kent D. Miller,et al.  Strategic Risk and Corporate Performance: an Analysis of Alternative Risk Measures , 1990 .

[11]  Kevin J. Murphy,et al.  Compensation and Incentives: Practice vs. Theory , 1988 .

[12]  D. Hambrick.  Some tests of the effectiveness and functional attributes of Miles and Snow's strategic types. , 1983, Academy of Management journal. Academy of Management.

[13]  R. Bettis.  Modern Financial Theory, Corporate Strategy and Public Policy: Three Conundrums , 1983 .

[14]  Phillip H. Phan,et al.  Ceo Tenure As a Determinant of Ceo Pay , 1991 .

[15]  E. Fama.  Agency Problems and the Theory of the Firm , 1980, Journal of Political Economy.

[16]  R. Bettis,et al.  Boards of Directors, Top Management Compensation, and Shareholder Returns , 1987 .

[17]  Karel Cool,et al.  Performance differences among strategic group members , 1988 .

[18]  John E. Prescott,et al.  Determinants of Top Management Compensation: Explaining the Impact of Economic, Behavioral, and Strategic Constructs and the Moderating Effects of Industry , 1990 .

[19]  K. R. Harrigan.  An Application of Clustering for Strategic Group Analysis , 1985 .

[20]  S. Shortell,et al.  Changing generic strategies: Likelihood, direction, and performance implications , 1989 .

[21]  Jonathan S. Leonard.  Executive Pay and Firm Performance , 1990 .

[22]  Jeffrey L. Kerr.  Diversification Strategies and Managerial Rewards: An Empirical Study , 1985 .

[23]  Thomas M Carroll,et al.  The Determinants of Executive Salaries: An Econometric Survey , 1980 .

[24]  Sydney Finkelstein,et al.  Chief executive compensation: A study of the intersection of markets and political processes , 1989 .

[25]  K. Fowler,et al.  POST-ACQUISITION FINANCIAL PERFORMANCE AND EXECUTIVE COMPENSATION , 1990 .

[26]  Stanley Baiman.  Agency research in managerial accounting: a survey , 1982 .

[27]  David B. Balkin,et al.  Toward a contingency theory of compensation strategy , 1987 .

[28]  E. Fama,et al.  Separation of Ownership and Control , 1983, The Journal of Law and Economics.

[29]  George T. Milkovich,et al.  Organizational Differences in Managerial Compensation and Financial Performance , 1990 .

[30]  Henry L. Tosi,et al.  The Decoupling of CEO Pay and Performance: An Agency Theory Perspective , 1989 .

[31]  Donald C. Hambrick,et al.  Strategic awareness within top management teams , 1981 .

[32]  Gregory B. Merrill,et al.  The effect of compensation program and structure on sbu competitive strategy: A study of technology‐intensive firms , 1991 .

[33]  P. Varadarajan,et al.  Strategic Adaptability and Firm Performance: A Market-Contingent Perspective , 1989 .

[34]  Gerardo R. Ungson,et al.  Motivation and Politics in Executive Compensation , 1984 .

[35]  Abbie J. Smith,et al.  An Empirical-Investigation Of The Relative Performance Evaluation Of Corporate-Executives , 1986 .

[36]  P. Varadarajan,et al.  Strategic types, distinctive marketing competencies and organizational performance: A multiple measures‐based study , 1990 .

[37]  V. Mahajan,et al.  Risk/Return Performance of Diversified Firms , 1985 .

[38]  C. C. Snow,et al.  Strategy, Distinctive Competence, and Organizational Performance. , 1980 .

[39]  S. Shortell,et al.  Perceptual and archival measures of Miles and Snow's strategic types: a comprehensive assessment of reliability and validity. , 1990, Academy of Management journal. Academy of Management.

[40]  M. C. Jensen,et al.  Harvard Business School; SSRN; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI); Harvard University - Accounting & Control Unit , 1976 .

[41]  R. Rumelt.  Strategy, structure, and economic performance , 1974 .

[42]  Steven E. Markham,et al.  Declining Organizational Size and Increasing Unemployment Rates: Predicting Employee Absenteeism from Within- And Between-Plant Perspectives , 1991 .

[43]  James W. Kolari,et al.  Marketing Strategy Implications of the Miles and Snow Strategic Typology , 1987 .

[44]  Steven E. Markham,et al.  Pay-for-performance dilemma revisited: Empirical example of the importance of group effects. , 1988 .

[45]  Donald C. Hambrick,et al.  Chief executive compensation: A synthesis and reconciliation , 1988 .

[46]  Henry Mintzberg.  The Nature of Managerial Work , 1974, Operational Research Quarterly (1970-1977).

[47]  Kevin J. Murphy,et al.  Corporate performance and managerial remuneration: An empirical analysis , 1985 .

[48]  R. E. Miles,et al.  Designing strategic human resources systems , 1984 .

[49]  David B. Balkin,et al.  Matching compensation and organizational strategies , 1990 .

[50]  K. Eisenhardt.  Agency Theory: An Assessment and Review , 1989 .

[51]  Jay R. Galbraith.  Designing the Innovating Organization , 1982 .

[52]  A. Przeworski,et al.  The logic of comparative social inquiry , 1970 .

[53]  Edward E. Lawler,et al.  The Strategic Design of Reward Systems. , 1982 .

[54]  H. Thomas,et al.  STRATEGIC GROUPS AND PERFORMANCE: THE U.S. INSURANCE INDUSTRY, 1970-84 , 1990 .