Do White Collar Employee Incentives Improve Firm Profitability?

Seppo Ikäheimo, Juha-Pekka Kallunki, Sinikka Moilanen, Eduardo Schiehll

Research output: Contribution to journalArticleScientificpeer-review

Abstract

We use proprietary archival compensation panel data from Finnish white-collar employees (WCEs) over the period of 2002 to 2011 in order to examine the relationship between performance-based incentives for WCEs and the future profitability of the firm as well as to determine whether this association is moderated by task complexity. While many studies examine the determinants and performance effects of CEO compensation, virtually no evidence has been presented to indicate that explicit financial incentives for WCEs improve the profitability of the firm. Our empirical results show that performance-based incentives for WCEs are significantly positively related to the future return-on-assets, return-on-equity, and profit margin ratios of the firm. We also find that this effect comes from the performance-based incentives for low-level WCEs, corroborating the importance of implementing performance-based incentives also to low-task complexity jobs.
Original languageEnglish
Pages (from-to)95-115
JournalJOURNAL OF MANAGEMENT ACCOUNTING RESEARCH
Volume30
Issue number3
DOIs
Publication statusPublished - 2018
MoE publication typeA1 Journal article-refereed

Keywords

  • white-collar employees
  • performance-based incentives
  • firm profitability
  • task complexity

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