EMPLOYEE INCENTIVE MECHANISM DESIGN FOR TECHNOLOGY FIRMS

Article type: Research Article

Authors: Erbas, Bahar Celikkol | Erbas, Cengiz

Affiliations: U.S. Department of Treasury, San Jose, CA, USA | River Touch Inc., New York, NY, USA

Note: [] The author is affiliated with U.S. Department of Treasury. The opinions expressed are those of the authors and do not represent views of the U.S. Department of Treasury

Abstract: This paper outlines an approach to analyze employee incentive mechanisms for technology firms. Today, technology firms employ some common incentive mechanisms, such as profit sharing, stock options and performance bonus plans. The primary objective of these incentive mechanisms is to align the employee performance awards with the strategic direction of the firm. However, when not designed properly, an incentive mechanism can promote the free-rider phenomena, or promote operations aligned not necessarily with the organizational goals. The paper introduces relevant concepts from the field of economics to understand the nature of the problem that managers are facing in formulating effective incentive mechanisms. It presents a game-theoretic approach (from the field of Economics) supported with a graph-theoretic representation (from the field of Computer Science), and models the organization as strategic interactions of employees having different and conflicting objectives. This paper presents an introductory version of our work, and targets an interdisciplinary audience.

Keywords: Incentive mechanism design, graph theory, game theory, wicked problems

Journal: Journal of Integrated Design & Process Science, vol. 8, no. 1, pp. 91-111, 2004