Organizational Differences in Managerial Compensation and Financial Performance

Abstract

This study had two general focuses. First, after reviewing the literature on compensation strategy, we examined the extent to which organizations facing similar conditions make different managerial compensation decisions regarding base pay, bonus pay, and eligibility for long-term incentives. Second, working from expectancy and agency theory perspectives, we explored the consequences of those decisions for organizational performance. Using longitudinal data on about 14,000 top-and middle-level managers and 200 organizations, we found significant differences between organizations. Our results suggest that organizations tend to make different decisions about pay contingency, or variability, rather than about base pay. Findings indicate that contingent pay was associated with financial performance but base pay was not.