Compensation Structure and the Creation of Exploratory Knowledge in Technology Firms
AbstractGiven the importance of exploration in a firmâ€™s overall innovation program, scholars have sought to understand organizational factors that give rise to exploration-oriented innovations. We propose theory and empirical evidence that relates firmsâ€™ use of financial incentives to their exploratory innovation performance. We expect that a larger proportion of long-term incentives in R&D employee compensation should be positively associated with the creation of exploratory innovation in a firm. In addition, we propose that a higher level of horizontal pay dispersion is negatively associated with the creation of exploratory innovation. We examine innovations reflected in the patents of a unique six-year, unbalanced panel dataset of 94 high-technology firms in the U.S. Empirical results confirm that firms with high level of horizontal pay dispersion have less exploratory patent innovations. However, surprisingly, firms that pay their R&D employees a higher proportion of long-term financial incentives in total compensation have lower level of exploratory innovation. This implies the possibility that popular longterm incentive plans in high-technology sectors (e.g., stock option plans) have failed to achieve their intended goals in practice. We discuss factors that might moderate the negative impact of long-term incentives on exploratory innovation.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Institute of Industrial Relations, UC Berkeley in its series Institute for Research on Labor and Employment, Working Paper Series with number qt2kq4b8qj.
Date of creation: 30 Mar 2011
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-03-28 (All new papers)
- NEP-CSE-2012-03-28 (Economics of Strategic Management)
- NEP-HRM-2012-03-28 (Human Capital & Human Resource Management)
- NEP-INO-2012-03-28 (Innovation)
- NEP-IPR-2012-03-28 (Intellectual Property Rights)
- NEP-KNM-2012-03-28 (Knowledge Management & Knowledge Economy)
You can help add them by filling out this form.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Lisa Schiff).
If references are entirely missing, you can add them using this form.