The Effect of Behaviour Monitoring and Uncertainty on the Use of Performance-Contingent Compensation

Leslie Kren, Jeffrey L. Kerr

Research output: Contribution to journalArticle

31 Scopus citations

Abstract

The objective of this study is to examine the effects of control system characteristics and perceived environmental uncertainty on the relative use of performance-contingent compensation. The results, based on a survey of division managers, indicate that monitoring ability is negatively associated with the use of performance-contingent compensation. In addition, monitoring is found to moderate the relationship between uncertainty and compensation system design. Whereas in non-monitoring firms, higher levels of uncertainty are associated with increased use of performance-contingent compensation, in monitoring firms, higher levels of uncertainty are associated with decreased use of performance-contingent compensation. These results support agency theory arguments that compensation structure is determined at least in part by concerns for economic efficiency.

Original languageEnglish (US)
Pages (from-to)159-167
Number of pages9
JournalAccounting and Business Research
Volume23
Issue number90
DOIs
StatePublished - Mar 1993

ASJC Scopus subject areas

  • Accounting

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