The Impact of the Reward Structure on Stickiness

29 Pages Posted: 7 Oct 2010 Last revised: 10 Dec 2010

Eelke Wiersma

VU University Amsterdam - Department of Accounting

Date Written: August 30, 2010

Abstract

Prior research has related cost stickiness to characteristics of the firm’s costs structure and managerial decisions. In this paper, I study the impact of the relative level of short term oriented bonuses in the manager’s reward system on stickiness. When managers have a relatively higher level of annual bonuses they have more incentives to decrease their firm’s resource level immediately after a decrease in sales. When the annual bonus is a smaller part of the total reward package, they might wait longer before they decrease the resource level, because sales might increase again in the near future.

Based on a sample of 2569 firms (16,033 firm-years) that are included in the Executive Comp database, I find that a higher percentage of bonuses in the total reward package leads to a lower stickiness level. These results are robust against the inclusion of a number of controls that capture the impact of the firm’s cost structure on stickiness.

Suggested Citation

Wiersma, Eelke, The Impact of the Reward Structure on Stickiness (August 30, 2010). AAA 2011 Management Accounting Section (MAS) Meeting Paper. Available at SSRN: https://ssrn.com/abstract=1668758 or http://dx.doi.org/10.2139/ssrn.1668758

Eelke Wiersma (Contact Author)

VU University Amsterdam - Department of Accounting ( email )

De Boelelaan 1105
Amsterdam, 1081 HV
Netherlands

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