EFFECTS OF STRATEGIC ORIENTATION AND ENVIRONMENTAL-CHANGE ON SENIOR MANAGEMENT REWARD SYSTEMS

This paper examines the effects of strategic orientation and environmental change on senior management reward systems. We develop a framework that relates differences in strategic orientations and environmental conditions to four factors-availability of multiple options, programability of behavior, cause-effect ambiguity and outcome uncertainty. Hypotheses based on this framework are tested in a sample of 50 electric utility firms across two time periods covering a total 10 years. Consistent with theory, we find that firms with more discretionary strategic orientations offer greater compensation, more outcome-based compensation plans and greater proportion of outcome-based cash compensation than firms with less discretionary strategic orientations. Similarly, high discretion environmental periods are associated with greater pay, more outcome-based compensation plans and greater proportion of outcome-based cash compensation than low discretion environmental periods.