The impact of cash incentives on TMT information seeking behavior in entrepreneurial firms

Abstract

We explore the relationship between cash incentives for the top management team (TMT) and managerial information seeking from sources external to the firm. We hypothesize that TMT cash incentives in tandem with base compensation, the firm's technological intensity and use of an aggregate performance criterion influence TMT information seeking from customers and vendors/suppliers (what we refer to as affiliate sources). Our hypotheses are tested by using data obtained from CEOs and the TMT in 193 entrepreneurial firms. As hypothesized, our results suggest that: a) cash incentives influence TMT information seeking primarily from affiliate information sources, b) the effect of cash incentives on TMT information seeking from affiliate sources is much stronger in technology intensive firms, and c) use of aggregate performance criterion has a negative impact on information seeking from affiliate sources. Our findings also indicate that in technology intensive firms, the positive relationship between cash incentives and TMT information seeking from affiliate sources is strongly moderated by the base pay levels of executives – the relationship is much stronger when executive base pay is low.