Organization-wide Broad-based Incentives: Rational Theory and Evidence
Marler, Janet H.; Milkovich, George T.; Yanadori, Yoshio
Despite the widespread use of incentive pay, there is limited evidence about what factors influence its organization-wide, broad-based application. This study uses data from three sources and multiple levels, including a unique data set of the total compensation of individual employees in 104 firms over a four-year period (1997-2000), and theoretically and empirically examines the use of bonuses and stock options in organization-wide applications. We examine the efficacy of three main rational theories, principal-agency, positivist agency and contingency theories, which are based on the premise that incentives are related to performance. At the individual level we identify two determinants: type of job and level within the hierarchy and four determinants at the organizational level: performance, risk, size, and strategy. Our results indicate that the factors derived from the three theories provide a limited explanation for the variation in the use of broad-based incentives within and across organizations.
firms; compensation; performance; stock; incentives; variable pay