Do White Collar Employee Incentives Improve Firm Profitability?

Research output: Contribution to journalArticle

Researchers

Research units

  • University of Oulu
  • HEC Montreal

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.

Details

Original languageEnglish
Pages (from-to)95-115
JournalJOURNAL OF MANAGEMENT ACCOUNTING RESEARCH
Volume30
Issue number3
Publication statusPublished - 2018
MoE publication typeA1 Journal article-refereed

    Research areas

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

ID: 29787135