The Impact of the Reward Structure on Stickiness
29 Pages Posted: 7 Oct 2010 Last revised: 10 Dec 2010
Date Written: August 30, 2010
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.
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