Doctoral Dissertations

Date of Award

12-1987

Degree Type

Dissertation

Degree Name

Doctor of Philosophy

Major

Business Administration

Major Professor

Max S. Wortman Jr.

Committee Members

H. Dudley Dewhirst, Kyle Reed, Roger Bowlby

Abstract

Strategic compensation, the process of deliberately designing an executive compensation system to facilitate the achievement of both short-term and long-term goals, was the focus of this research. The research was conducted from September 1983 to November 1986. The purpose of the research was to identify variables operating in strategic compensation systems, and to learn how the systems were designed and operationalized. A pilot study conducted in the Fall of 1982 indicated that a few firms were utilizing strategic compensation, but the number of such systems was small.

Because of the recent development of strategic compensation, an exploratory, holistic case study was designed and completed in three unrelated firms in the banking and finance industry. In each company, the system design and administration was investigated, and major variables affecting the system were examined. Following the individual case analyses, a cross-case analysis was performed with the intent of generalizing to strategic management theory if the results so warranted.

In the cross-case analysis, the external variables which were identified and monitored in the design and administration of the executive compensation plan were the industry in which the firm operated, the compensation plan of competitors, and economic variables, particularly inflation and tax laws. The internal variables were size, culture, strategy and resulting structure, and financial constraints. Although firms attempted to forecast changes in these variables, none had a mechanism for handling major changes which occurred after executive performance objectives had been established.

While each firm had a distinct compensation system, certain similarities were observed. All firms had several points where the strategic management process and the strategic compensation system were either coincidental or had information exchanges. Executives were aware of both corporate objectives and their own performance objectives. In no firm, however, did a formal mechanism exist for handling problems in the compensation system.

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