Design And Analysis Of Compensation Contract Model:Based On The Duality Of Subsidiary Behavior

Traditional research of compensation contract design in Enterprise Group focused on the impact of the headquarters’decision variables to subsidiaries’efforts. The efforts of subsidiaries were assumed to be an unstructured variable without distinguishing the types of efforts. However, in the internal networks of enterprises, with the increasing degree of environment complexity and strengthening competition, the role and the status of the subsidiaries has continued to change:from traditional resources receiver of enterprise group who compliances the headquarters’order, transformed into strategic actors who have the will and ability to innovate independently. At this point, the efforts of subsidiaries have begun to develop into dual structure:the exploratory behavior and exploitation behavior. Therefore, in this context, the original compensation contract model has been unable to meet the business practice.Scholars did many related researches of firm binary behavior from many different angles since March clearly put forward exploratory and exploitation in1991, including targets of binary behavior, knowledge bases of binary behavior, mutual relations of binary behavior, the impact on performance of binary behaviors etc., However, these studies were conducted in the context of a single enterprise, and have not researched binary behavior patterns of subsidiaries in the context of enterprise groups, as well as how the headquarters to manage binary behavior of subsidiaries.For the changes of subsidiary behaviors caused by role changes, this paper firstly divide subsidiary behaviors into exploratory behavior and exploitative behavior. In order to explore the influence of relevant decision variables on dualistic behaviors of subsidiary, this paper uses the principal-agent theory to design a compensation contract model. The results show that:the optimal output sharing coefficient and the exploitative effort level will decrease with the raise of headquarters support level and the reduction of exploitative profitability, and they shows the tendency of "positive U shape" with the raise of subsidiary input and expected rate of exploratory return. If the subsidiary input or the expected rate of exploratory return is very low, the exploratory effort level shows the tendency of "inverted U shape" with the raise of headquarters support level. Otherwise, it shows the tendency of increase. Besides, the exploratory effort level will improve with the raise of exploitative profitability, expected rate of exploratory return and subsidiary input. Finally, this paper gives a visual display of the conclusions by a numerical example. This paper provides some theoretical references for headquarters to control subsidiary dualistic behaviors effectively by the optimal incentive mechanism and resource support, and provides a new direction for the study of subsidiary dualistic behaviors by deductive method, and put forward rationalization proposals for headquarters to manage the subsidiary binary behavior according to the conclusion of this article.