Compensation, Incentives and Organizational Change: Ideas and Evidence from Theory and Practice
BREAKING THE CODE OF CHANGE, Michael Beer and Nitin Nohria, Eds, Harvard Business School Press, Boston
Posted: 25 Jan 2000
This paper examines how compensation systems can facilitate or hinder value creating change in organizations. It draws on ideas and evidence, both old and new, from theory and practice and examines four critical ways in which well-designed compensation systems create value in organizations. Specifically, compensation systems:
1. Improve the motivation and productivity of employees, 2. Promote productive turnover in personnel, 3. Mobilize valuable specific knowledge by allowing effective decentralization and, 4. Help overcome organizational inertia and opposition to change.
The paper also addresses the issue of timing in the implementation of a new compensation system. Conventional wisdom in the field of organizational behavior advocates changing compensation systems only after new "strategy and structure" are designed and implemented. In contrast, I provide arguments and evidence in support of changing compensation systems "early", more specifically after managers identify and adopt an over-arching objective for the firm, but before they have completely specified how that objective translates into a new strategy and/or structure.
JEL Classification: G34, J33, D23, L10, M40, M46
Suggested Citation: Suggested Citation