Edited by Anthony J. Nyberg and Thomas P. Moliterno
Chapter 24: Strategic compensation: a critique and research agenda
Scholars and management practitioners often hold that management of a firm’s compensation system can be a source of strategic advantage. This chapter argues that the academic literature on compensation has not yet provided a compelling theory for how a firm’s compensation systems can generate long-term sustainable competitive advantage over its rivals. It reviews the basic theory of competitive advantage and shows that, while the current literature is clear that compensation systems can affect performance, it is unclear whether improved use of compensation systems simply represents a correction of a previous inefficiency or actually provides a way for firms to outperform competitors in a way competitors cannot imitate. The chapter lays out what a true theory of strategic compensation might look like, and critiques several pitfalls that inhibit current compensation research from making a compelling case for the strategic role of compensation by firms.
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