STRATEGIC ORIENTATIONS, INCENTIVE PLAN ADOPTIONS, AND FIRM PERFORMANCE - EVIDENCE FROM ELECTRIC UTILITY FIRMS

This study examines the performance implications of the fit between st rategic orientations and incentive plan characteristics. Research hypo theses are based on a framework that draws upon managerial discretion and agency theories to identify the links between firm strategy, manag erial motivation and control, managerial risk-bearing, and incentive p lan characteristics. A pooled cross-sectional, rime series research de sign is used to test hypotheses in a sample of 50 electric utility fir ms. Consistent with theory, results indicate that annual bonus plans t hat use cash incentives and accounting measures of performance lead to better performance among firms with Defender strategic orientations. In contrast, firms with Prospector strategic orientations realize perf ormance benefits when they adopt stock-based incentive plans and use m arket measures to evaluate managerial performance. (C) 1997 by John Wi ley & Sons, Ltd.