The endogenous character of executive compensation: Does corporate strategy affect the choice to adopt residual income-based incentives?

This study investigates whether firms following a prospector strategy are less likely to adopt residual income (RI) as their main performance measure than firms following a defender strategy. The rationale behind this research question is that previous research has shown that implementing RI-based incentives has some behavioral consequences that intuitively do not rhyme well with the objectives of a growing firm. The sample consists of 40 RI adopters, matched with 40 non-adopters, for each of which strategy is measured as a combination of three publicly available ratios. Although the empirical results of this study are inconclusive, he research has lead to renewed insights that should be of use to researchers in the future.

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