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Study   Not all managers respond to performance-based pay

Incentive pay not motivating enough for some managers

Incentive payIncentive compensation is a popular practice, with companies offering managers incentive pay in the hopes of improving company performance.

But not all managers respond to performance-based pay, according to new research from The University of Texas at Dallas.

READ MORE CEO personality traits play role in incentive pay, compensation

Doctoral candidate Joyce Cong Ying Wang said the study, recently published online in the Journal of Organizational Behavior, examined differences in individual characteristics — specifically career ambition and task attention — and business context to see how they affected managers' responses to incentive pay.

Wang, who is studying international management studies in the Naveen Jindal School of Management, began the research more than two years ago while working at China Europe International Business School with co-author Dr. Daniel Han Ming Chng.

The researchers created a model and tested it using a computer-based simulation with part-time MBA students who work as managers in companies. The students were presented with a business scenario and had to make strategic decisions.

“We found that managers with higher career ambition will be more responsive to incentive pay by taking more risks,” Wang said.

“We found that task attention more consistently affects managers' response to incentive pay. When managers are offered incentive pay, if they are very attentive to tasks, they will take more risks. They tend to invest more strategically, and they also are more likely to change strategies.”

The study also found that when a company's performance grows, incentive pay does not work as well as when a company's performance declines.

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