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

Leslie Kren, Jeffrey L. Kerr

Research output: Contribution to journalArticlepeer-review

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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