Charting a path between firm‐specific incentives and human capital‐based competitive advantage

• Author: David Kryscynski,Benjamin Campbell,Russ Coff
• Published date: 01 February 2021
• Date: 01 February 2021
• DOI: http://doi.org/10.1002/smj.3226

RESEARCH ARTICLE

Charting a path between firm-specific

incentives and human capital-based

competitive advantage

David Kryscynski

1

| Russ Coff

2

| Benjamin Campbell

3

1

Brigham Young University, Marriott School of Business, Provo, Utah

2

University of Wisconsin, School of Business, Madison, Wisconsin

3

The Ohio State University, Fisher School of Business, Columbus, Ohio

Correspondence

David Kryscynski, Brigham Young

University, Marriott School of Business,

Provo, UT.

Email: dk@byu.edu

Funding information

Georgia Research Alliance; Ewing Marion

Kauffman Foundation

Abstract

Research Summary: Scholars have long recognized

the theoretical and practical implications of firm-

specific human capital. However, we highlight that

firm-specific incentives (i.e., worker incentives that pro-

vide more utility to workers in the focal firm than simi-

lar incentives available at other employers) provide an

important pathway to competitive advantages that has

not been comprehensively examined in the extant orga-

nizational research. We address this gap by (a) defining

firm-specific incentives and showing why they are dif-

ferent from incentive conceptualizations and typologies

in the extant literature, (b) articulating potential origins

of firm-specific incentives, and (c) formally proposing

the conditions under which firm-specific incentives

facilitate human capital-based competitive advantages.

In so doing, we develop a cohesive theoretical frame-

work of incentive-based competitive advantage that

integrates across multiple literatures.

Managerial Summary: Just as companies differentiate

their products by creating unique value for customers,

they also create unique value for their employees. Some

companies do this by offering employee incentives,

perks, and benefits that are highly unique to the com-

pany and difficult for other companies to imitate. These

Received: 25 February 2019 Revised: 15 July 2020 Accepted: 16 July 2020 Published on: 26 August 2020

DOI: 10.1002/smj.3226

386 © 2020 John Wiley & Sons Ltd Strat Mgmt J. 2021;42:386–412.wileyonlinelibrary.com/journal/smj

unique incentives, perks, and benefits can help these

companies to attract, motivate, and retain top talent at a

financial discount and, accordingly, can help these com-

panies realize competitive advantages over their rivals.

KEYWORDS

firm-specific human capital, human capital-based competitive

advantage, incentive-based competitive advantage, strategic human

capital, strategic incentives

1|INTRODUCTION

In practice, firms often leverage highly firm-specific employee incentives—that is, incentives

that provide more utility to workers in the focal firm than similar incentives available at other

employers. For example, SpaceX's unique mission to Mars and Disney's park, hotel, and mer-

chandise discounts provide significant utility to employees that would be hard for rivals to repli-

cate. Indeed, many firms actively leverage such incentives to realize advantages in attracting,

motivating, and retaining human capital. Some research has touched on idiosyncratic incen-

tives such as the Bidwell, Won, and Barbulescu (2015) finding that high status firms may have

attraction advantages and Burbano's (2016) finding that employees may accept lower wages

when a firm offers a unique social mission. These literatures imply that firm-specific incentives

may facilitate human capital-based competitive advantages (Chadwick, 2017; Coff, 1997).

While the idea that firms may offer firm-specific incentives may not be surprising, there is no

cohesive theoretical development of how they differ from the many types of incentives explored

in the literature. It is, thus, unclear where firm-specific incentives come from and precisely when

they are most likely tofacilitate competitive advantages. In other words, it seems that, while firms

often actively seek to leverage firm-specific incentives to create competitive advantage in practice,

theoretical development lags in identifying how and when they may be effective.

The lack of such a theory is problematic for at least three reasons. First, the traditional strat-

egy approach to human capital-based competitive advantages implicitly assumes that firms are

relatively homogenous in the incentives they offer. That is, firms simply need to identify the

right strategic contingencies and then choose the optimal incentive bundle (Balkin & Gomez-

Mejia, 1990; Galbraith & Kazanjian, 1986; Miles & Snow, 1984), under the assumption that they

can offer any incentive and that the cost of each incentive does not vary across firms. This limits

the ability of extant theory to incorporate heterogeneity in the provision of incentives. Second,

such incentives could explain how and why some firms realize competitive advantages indepen-

dent of firm-specific human capital. Most prior research assumes general human capital cannot

be a source of competitive advantage (Molloy, Ployhart, & Wright, 2011), but this ignores the

possibility that firms may differentiate themselves based on incentives. Third, a robust theory of

firm-specific incentives may help provide a conceptual bridge between micro research on incen-

tives and theories of competitive advantage. While scholars have studied the impact of different

types of incentives (such as social, intangible, and so forth) on individual outcomes, a theory of

firm-specific incentives highlights when these may also drive firm-level advantages. This multi-

level approach promotes a deeper understanding of the micro-foundations of strategy (Felin &

Foss, 2005).

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