Managerial Incentive Systems : Reasons Behind Use and Design

Sammanfattning: Managerial incentive systems have for a long time been criticized by different fields within the academia for contributing to a short-term focus among managers, which undermines the long-term interest of shareholders. Despite the critique put forward by business scholars and behavioral scholars, short-term structures are still prevalent within managerial incentive systems. This study explores why large cap firms have not aligned their managerial incentive systems to the critique from business scholars and behavioral scholars. Furthermore, this study aims to contribute to a deeper understanding of the existence and development of managerial incentive systems. In order to address the aim of the study, eight small case studies were conducted at eight large cap firms. The findings of the study indicate that short-term structures are considered pivotal in attracting and retaining managerial talent, directing the attention of managers to important targets in generating shareholder value and motivating the managers to perform at the top of their capacity. Furthermore, the study shows that the short-term structures, criticized within the academia, are reinforced and institutionalized by stakeholder pressure and organizational contingencies.