The Role of Compensation Methods in Corporate Entrepreneurship

Abstract

This paper analyzes the role of compensation methods in the process of fostering corporate entrepreneurship. Drawing on agency theory and expectancy theory, hypotheses relating compensation methods to employees' entrepreneurial behavior are empirically examined in the context of defense products firms aiming at encouraging their employees' innovations at the civilian markets. The results show that entrepreneurs prefer compensation that is related to the internal venture's performance. Managers' willingness to take on civilian projects is higher if they are assured that they will be personally compensated for the project's success. Surprisingly, the more entrepreneurial employees preferred staying in the defense market rather than converting to civilian markets.

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