Strategy, Incentive Design and Performance: Empirical Evidence

45 Pages Posted: 11 Aug 2008

See all articles by Dipankar Ghosh

Dipankar Ghosh

University of Oklahoma

Joanna L.Y. Ho

University of California, Irvine - Accounting Area

Hiroshi Miyashita

Kyoto Sangyo University - Faculty of Business Administration

Multiple version iconThere are 2 versions of this paper

Date Written: August 11, 2008

Abstract

Firms pursuing different business strategies should align these strategies to incentive design. This study uses both archival and survey data on 110 stores of a Japanese high-end bakery chain to provide empirical evidence that misalignment between an organization's business strategy and incentive design (i.e., weights for financial and nonfinancial measures) adversely affects firm performance. Our results suggest that a decline in the firm's performance may be caused by managers' shifting their focus toward financial measures that are inconsistent with a customer-oriented strategy. Although the firm requires the exclusive usage of nonfinancial measures of performance in determining promotions, our results show that financial measures affect managers' promotions. As expected, the influence of financial measures in promotion decisions becomes more pronounced after the firm shifts to a primarily financial-focused bonus plan.

Keywords: business strategy, compensation scheme, financial measure, nonfinancial measure, promotion

JEL Classification: M41, M52

Suggested Citation

Ghosh, Dipankar and Ho, Joanna L.Y. and Miyashita, Hiroshi, Strategy, Incentive Design and Performance: Empirical Evidence (August 11, 2008). Available at SSRN: https://ssrn.com/abstract=1217702 or http://dx.doi.org/10.2139/ssrn.1217702

Dipankar Ghosh

University of Oklahoma ( email )

307 W Brooks
Norman, OK 73019
United States
405-325-5777 (Phone)
405-325-7348 (Fax)

Joanna L.Y. Ho (Contact Author)

University of California, Irvine - Accounting Area ( email )

Irvine, CA 92697-3125
United States
949-824-4041 (Phone)
949-725-2833 (Fax)

Hiroshi Miyashita

Kyoto Sangyo University - Faculty of Business Administration ( email )

Motoyama, Kamigamo, Kita-ku
Kyoto-shi 603-8555
Japan

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