Short-term economic incentives in new product development

This study investigates the use of variable compensation to motivate new product development managers and its impact upon the performance of new product development projects. Using data from 56 projects, the paper examines how technology-intensive firms compensate their product development managers. The study finds a positive and significant relationship between the use of short-term economic incentives and project performance; however, the slope of this relationship is not linear and its intensity (slope) decreases as the percentage of variable compensation increases; furthermore, the relationship is contingent on the level of project uncertainty. The results also indicate that higher project uncertainty is associated with a lower level of variable compensation. Moreover, organizational structure, through its effect upon the allocation of uncertainty among organizational participants, also affects the level of variable compensation.