Impact of decision-right delegation and firm strategies on line-function managers' performance evaluation and incentive compensation

This dissertation is one of the first studies on line-function managers' performance evaluation and incentive compensation (PEIC) and to explore the linkage between evaluations and compensation structures. Through a survey conducted in the southern California area, I collected 181 responses from 14 companies/divisions in the new economy and 11 companies/divisions in the traditional economy.; Following prior research on CEO compensation, I hypothesize and find that both the types of decision rights delegated and a firm's strategy significantly influence line-function managers' PEIC structures. Specifically, among financial, nonfinancial and subjective performance measures, sales managers' PEIC have the highest weights on financial measures while design managers' PEIC have the highest weights on subjective measures. In addition, I find a positive association between a firm's strategic competitive foci and managers' performance measures in their evaluation. I also explore the relationship between performance measures in a line-function manager's performance evaluation and her incentive compensation. While weights on performance measures in these two structures are positively associated, incentive compensation formulas place higher weights on financial measures than are placed on them in evaluations.