The Structure of Organizational Incentives

Abstract

0 The financial support of Peat Marwick Main & Co., Ernst & Young, David Hauck, and the Reginald H. Jones Center for Management Policy, Strategy, and Organization is gratefully acknowledged. We would like to thank Sherwin Rosen, Stanley Baiman, Marshall Meyer, three anonymous reviewers, and the workshop participants at the Wharton School, Harvard Business School, Washington University, Northwestern University, Odense University, Uppsala University, and the Shore Conference on Strategic Models for their helpful comments. To improve understanding and design of organizational incentives, we used confidential compensation data obtained for four distinct organizational levels (ranging from plant manager to corporate chief executive officer) to evaluate the ability of tournament, managerial power, and agency theories to explain these observed compensation data. Our results suggest that organizational incentives are most appropriately characterized by a combination of these models, rather than being completely described by a single theoretical description.'