Design of executive compensation packages influenced types of information sources used when making critical decisions,
Research identified three types of knowledge sources,
Market-- including customers and vendors,
Network-- including consultants and colleagues in other organizations,
Secondary-- including publications, the Internet, and industry trade organizations,
Market sources,
Risk-free strategy that ties to an organization's core operation,
Can be assessed through established organizational processes,
Typically build incrementally on existing strategies,
Network sources,
More effort to access (may need to be cultivated),
Used to gain information not available through market sources,
Can provide unique information supporting a more risky strategy,
Secondary sources,
Less organized requiring more time and effort to acquire,
Associated with personal development and skill building,
Collection of information not available through any other source,
Risk aversion for information sources changes with compensation,
An executive with a lower base pay was more willing to bear risk because of reliance on short-term variable pay to maintain cost of living,
Executives will avoid making risky decisions that could jeopardize expected bonuses, and will even clear strategies with stakeholders before action,
Compensation that required a vested period reduced the amount of risk an executive was willing to bear,
If base pay was sufficient to cover lifestyle expenses, short-term incentives were treated as extra, executives wouldn't increase risk bearing,
Structure of compensation package influenced information sources,
Executives with a many options and a long vestment period showed considerably more use of network sources (not true for control group),
Low base pay and high short-term incentives showed an increase use in market sources to mitigate executives high risk,
Low base pay and high short-term incentives executives also heavily used network sources (researchers speculate that high degree of risk caused them to seek as many sources as possible),
Short-term incentives tied to individual performance doesn't increase the amount of information sought (no increase in market or network source, but large increase in use of secondary sources),
The two-stage study investigated compensation and information sources of 207 top executives in software manufacturing firms and a control group of 247 executives in non-high tech firms. First, CEOs were asked to describe the compensation packages of their top executives. In the second stage, these executives were surveyed about their information-seeking behavior.
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