Diversification Strategies and Managerial Rewards: An Empirical Study

Abstract

This study examined the relationship between diversification and the design of managerial reward systems in 20 large industrial firms. Interviews with 89 compensation specialists, strategic planners, and line managers provided data on performance issues such as performance definition, evaluation, and feedback, and format rewards including bonus, salary, stock, perquisites, and promotion. Three clusters of firms were identified, each characterized by a distinctive reward system. Analysis indicated that type of diversification and pattern of linkage did not explain cluster composition. However, the distinction between steady-state and evolutionary processes did explain the composition in two of three clusters. It was concluded that the process by which diversification had been achieved was a greater influence on the design of managerial reward systems than was the cumulative extent of diversification at a given point in time.