Contracting for success: aligning managers’ compensation contracts with the supply chain strategy

Claes, Björn (2008). Contracting for success: aligning managers’ compensation contracts with the supply chain strategy. In: Academy of Management Annual Meeting, 8-13 Aug 2008, Anaheim, CA, US.

Abstract

Research into the choice of employee compensation has provided valuable insights into the factors that explain these compensation choices. Whereas the relationship between CEO compensation and firm performance has been widely investigated, relatively little attention has been devoted to the effect of compensation at below the top executive level on performance at the functional level. This paper investigates just that. More specifically, using an agency theory perspective, we examine the effect of incentive pay and the motivation scheme applied to supply chain managers on a firm’s supply chain performance. We argue that the design of compensation contracts for supply chain managers needs to take into consideration the supply chain context in which the company operates. We also discuss several contextual factors that may affect the relationship between supply chain strategy and the type of the remuneration contract.

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