Top Managers’ Compensation, Strategic Orientations, and Firm Performance: Empirical Evidence from Spanish Firms

Abstract

This paper analyzes the links among executive compensation, a firm’s strategic orientation, and firm performance. A number of key questions relative to the relationships among these elements remain unanswered because prior research on this subject has reported mixed results, and, moreover, has been confined almost exclusively to U.S. firms. We develop a framework that draws on arguments from agency theory to identify such links. A research design with both archival and survey data is used to test hypotheses in a sample of 253 Spanish companies. We found that top managers’ compensation systems are linked with a firm’s strategic orientations, but in a different form than that of previous studies. Results show two differentiated groups of firms: (1) prospective firms that adapt their managerial compensation systems to the requirements of strategic context, consequently obtaining positive performance effects; and (2) conservative firms that design managerial compensation systems independent of strategic context, consequently not obtaining additional performance benefits.

Citation

Sánchez Marín, G. and Aragón Sánchez, A. (2003), "Top Managers’ Compensation, Strategic Orientations, and Firm Performance: Empirical Evidence from Spanish Firms", Management Research, Vol. 1 No. 1, pp. 27-44. https://doi.org/10.1108/15365430380000516