The Strategic Implications of Firm-Specific Incentives Open Access

Abstract

This dissertation explores the strategic implications of firm-specific incentives - i.e. incentives that are more valuable to workers in their focal firms than similar incentives at rival firms. Strategy scholars have largely dismissed the value of incentives in realizing human capital based competitive advantages because they have assumed that incentives are more or less created equally across firms. In contrast, the theory of firm-specific incentives argues that some firms may be able to offer incentives that rivals cannot imitate or replicate, and that these incentives may be offered and maintained at cost discounts relative to rivals. In other words, these incentives may actually explain sustained human capital based competitive advantages.

Following a three paper dissertation model, the first paper theoretically develops the firm-specific incentives construct and illustrates how this construct is distinct from extant concepts and approaches in the organizational literature. This paper also articulates the high level performance implications of firms' abilities to create, offer and/or leverage these incentives in their overall incentive bundles.

The second paper explores the empirical implications of firms' abilities to offer more incentives that are highly firm-specific in a sample of 275 software firms. Primary firm-level data on firm-specific incentives is combined with individual level financial compensation data for 7770 developers to explore the relationships between firm-specific incentives and voluntary turnover and wage outcomes. Results suggest that firms that offer more incentives that are highly firm-specific have lower voluntary turnover and lower wage-tenure slopes. The third paper explores whether small firms have advantages offering incentives that are highly firm-specific in a sample of 271 software firms. Primary firm-level data on firm-specific incentives is combined with firm level data from secondary sources to explore the relationships between firm size and firm-specific incentives. Results suggest that smaller firms offer more incentives that are highly firm-specific in their overall incentive bundles.

Table of Contents

Table of Contents
Abstract iv
Acknowledgements vi
Table of Contents viii
List of Figures xi
List of Tables xi
1. WHY STRATEGY FRAMEWORKS NEED A THEORY OF FIRM-SPECIFIC INCENTIVES 1
1.1. A Theory of Firm-Specific Incentives 1
1.2. Human Capital Based Competitive Advantage 3
1.3. The Strategic Importance of Firm-Specific Incentives 7
1.4. Overview of Dissertation Papers 10
2. HOW FIRM-SPECIFIC INCENTIVES EXPLAIN HUMAN CAPITAL BASED COMPETITIVE ADVANTAGES 13
2.1. Developing the Nascent Firm-Specific Incentives Construct 13
2.2. Defining Firm-Specific Incentives 15
2.2.1. How the Story Differs from Conventional Human Capital Theory 16
2.2.2. How Firm-Specificity Differs from Extant Incentive Categorizations 20
2.2.3. How this Approach Builds on Extant HR Practice Approaches 23
2.3. Explaining Firm-Specificity of Incentives 25
2.3.1. Firm-Level Barriers to Imitation 26
2.3.2. Psychological and Emotional Processes Affecting Worker Perceptions 29
2.4. Strategic Implications of Firm-Specific Incentives 33
2.4.1. Retaining Human Capital 33
2.4.2. Recruiting Human Capital 39
2.4.3. Motivating Human Capital 41
2.5. Discussion and Future Research 45
2.5.1. Practical Implications 49
2.5.2. Limitations 50
2.5.3. Conclusion 51
3. RETAINING HUMAN CAPITAL AT A DISCOUNT 52
3.1. Empirical Outcomes of Firm-Specific Incentives 52
3.2. Firm-Specific Incentives and Competitive Advantage 54
3.2.1 What are firm-specific incentives? 54
3.2.2. Firm-Specific Incentives and Firm-Specific Human Capital 57
3.2.3. Firm-Specific Incentives and Retaining at a Discount 59
3.3. Methods 65
3.3.1. Measures 69
3.4. Results 77
3.4.1. FSI and Retention 77
3.4.2. FSI and Retention Discounts: 80
3.4.3. Excludable and Non-excludable Firm-Specific Incentives 84
3.4.4. Other Sub-Groupings of Firm-Specific Incentives 86
3.4.5. Addressing Sorting Concerns 87
3.5. Discussion and Conclusion 88
3.5.1. Theoretical Implications 88
3.5.2. Practical Implications 90
3.5.3. Strengths, Limitations and Future Research 92
3.5.4. Conclusion 95
4. DO SMALL FIRMS HAVE ADVANTAGES OFFERING FIRM-SPECIFIC INCENTIVES? 96
4.1. Small Firm Advantages through Firm-Specific Incentives 96
4.2. Why Firm-Specific Incentives Matter 98
4.3. Small Firms Have Advantages Offering FSI 100
4.3.1. Firm Size and Incentive Flexibility 103
4.3.2. Firm Size and Intangible Incentives 108
4.4. Methods 113
4.4.1. Measures 116
4.4.2. Model Specification 121
4.5. Results 122
4.5.1. Robustness checks 122
4.5.2. Exploring the Mechanisms 124
4.5.3. Addressing the Sorting Concern 127
4.6. Discussion and Conclusion 129
4.6.1. Theoretical Implications 129
4.6.2. Limitations 131
APPENDIX 1 134
APPENDIX 2 135
APPENDIX 3 144
APPENDIX 4 145
LIST OF REFERENCES 146

About this Dissertation

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School	Laney Graduate School
Department	Business
Degree	PhD
Submission	Dissertation
Language	English
Research Field	Business Administration, Management
Keyword	Competitive Advantage Strategy Human Capital
Committee Chair / Thesis Advisor	Coff, Russell, Emory University
Committee Members	Makadok, Richard, Emory University Kazanjian, Robert, Emory University Barney, Jay, The Ohio State University

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