Strategy, Incentive Design and Performance: Empirical Evidence

48 Pages Posted: 16 Aug 2010 Last revised: 15 Dec 2010

See all articles by Dipankar Ghosh

Dipankar Ghosh

University of Oklahoma

Joanna L.Y. Ho

University of California, Irvine - Accounting Area

Hiroshi Miya

Kobe University

Multiple version iconThere are 2 versions of this paper

Date Written: May 3, 2010

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 non-financial performance measures) adversely affects firm performance. Our results suggest that a decline in the firm 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 non-financial measures in determining promotions, as expected, our results show that financial measures affect managers’ promotions. Additional analyses show that the influence of non-financial measures in promotion decisions becomes less pronounced after the firm shifts to a primarily financial-focused bonus plan.

Keywords: Business Strategy, Compensation Scheme, Financial Measure, Non-Financial Measure, Promotion

JEL Classification: M40, L21

Suggested Citation

Ghosh, Dipankar and Ho, Joanna L.Y. and Miya, Hiroshi, Strategy, Incentive Design and Performance: Empirical Evidence (May 3, 2010). AAA 2011 Management Accounting Section (MAS) Meeting Paper. Available at SSRN: https://ssrn.com/abstract=1659689 or http://dx.doi.org/10.2139/ssrn.1659689

Dipankar Ghosh (Contact Author)

University of Oklahoma ( email )

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

Joanna L.Y. Ho

University of California, Irvine - Accounting Area ( email )

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

Hiroshi Miya

Kobe University ( email )

2-1, Rokkodai-cho, Nada-ku
Kobe, 657-8501, 657-8501
Japan

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