Management Accounting Section Midyear Meeting

Moving from Carrots and Sticks to Peas and Carrots: The Importance of Organizational Culture When Choosing Contract Frames

• In Event: Informal Control and Contract Framing (Experimental)

Abstract

Organizations utilize numerous formal and informal control mechanisms to better align employee interests with those of the organization. Just as we match our shirt and pants before heading to work, organizations must match their informal and formal controls to create a cohesive system of controls. Applying a lens of regulatory fit theory, we investigate how the communication of corporate culture as values or norms influences the efficacy of bonus- versus penalty- contract frames on employee behavior. Using an experiment, we find that when employees experience a high fit between corporate culture communication and contract frame, via i) corporate cultural values paired with bonus-framed contracts and ii) corporate cultural norms paired with penalty-framed contracts, they are more likely to forgo self-interested outcomes and instead benefit the organization. Our findings suggests that no one contract frame dominates, but instead the must be implemented in tandem with a congruent corporate culture.

Authors

• Jeffrey Hales, The University of Texas at Austin

• Wenqian Hu, Georgia Institute of Technology

• Jordan Samet, University of Illinois Urbana-Champaign