Top Management Team Incentives and Paradox

Type and Duration

FFF-Förderprojekt, March 2022 until February 2023

Coordinator

Chair of Strategic Management and Entrepreneurship

Main Research

Growth and Complexity

Description

The objective of this research project is to link the disconnected research streams on TMT incentives and paradoxes as well as to address relevant research gaps through one conceptual and two empirical projects.
In order to get a comprehensive overview of the incentives literature, the first project aims to review research on non-financial performance metrics (NFPM) in executives’ compensation and identify gaps,
patterns, and future research opportunities. The second project aims to shed light on how different kinds of social incentives are related to social and financial firm-level outcomes and which role social and economic value orientations play in this regard. Finally, the third project studies the role of TMT incentives for firms’ ability to simultaneously engage in exploration and exploitation (i.e., to become ambidextrous) and examines the role of firms’ financial performance in this relationship.

Keywords:Ambidexterity, Paradox, Top Management Teams, Incentives, Compensation

Practical Application

All three projects have both practical relevance since the design of TMT incentives and the respective firm level outcomes are relevant for all types of organizations. Particularly, understanding the complex effects of non-financial performance metrics in executives’ compensation in the first project would allow owners and board of directors to enhance the effectiveness of firms’ governance mechanisms as well as leaders’ incentive and compensation systems. The findings of the second project encourage board of directors to pay increasing attention to the adaptation of social incentives in several types of organizations. By digging in deeper into the distinct effects of social incentives, several organizations should be guided on how to structure and weight the specific components in the respective compensation schemes. Further, the results in the third project allow practitioners to pay increasing attention to the context in which senior executives take their decisions to engage in exploration and exploitation.

Reference to Liechtenstein

Improving the understanding of the relationship between executives’ incentives and firms’ ability to deal with contradictory but interrelated objectives (i.e., ambidexterity and hybridity) can provide important insights for companies, managers and boards of directors in Liechtenstein and the greater Rhine Valley region. The results from the project show, among others, that in addition to the more informal approaches, such as values, culture and symbolism, the incorporation of sustainability and responsibility goals into formal systems and structures (such as the compensation system) are necessary to promote social performance. As companies in Liechtenstein and the Rhine Valley Region place special emphasis on values, norms, sustainability and society, these findings are particularly relevant for diverse types of organizations in this region. In general, by providing insights in how innovation can be fostered without neglecting profitability and how sustainability goals can be pursued without jeopardizing firms’ economic viability, the findings of the project are interesting and relevant for the broader audiences in Liechtenstein. Further, incentives for senior executives are a regular topic of intensive public debate in Switzerland and Liechtenstein. This project has the potential to provide empirical grounded in-depth insights into the actual effects of different incentive and compensation schemes on firms’ economic and/or social performance and may thus be instrumental to inform not only managers, but also political decision makers and the broader public.