TY - JOUR

T1 - Framing contractual performance incentives

T2 - effects on supplier behaviour

AU - Selviaridis, Konstantinos

AU - van der Valk, Wendy

N1 - This article is (c) Emerald Group Publishing and permission has been granted for this version to appear here. Emerald does not grant permission for this article to be further copied/distributed or hosted elsewhere without the express permission from Emerald Group Publishing Limited.

PY - 2019/2/4

Y1 - 2019/2/4

N2 - Purpose The purpose of this paper is to investigate the effects that the framing of contractual performance incentives have on supplier's behavioural and relational responses and on the buyer-supplier relationship.Design/methodology/approach The authors conducted three in-depth case studies of contractual relationships, which exhibit differences in terms of how performance incentives are framed, i.e., using promotion, prevention and hybrid frames, respectively. The study involved 38 semi-structured interviews and content analysis of contract agreements.Findings First, while promotion-framed incentives lead to positive supplier responses and improved relationships, prevention-framed incentives result in negative responses and deteriorating relations. Second, hybrid-framed incentives can lead to productive supplier responses when positive ex ante expectations are met, although the creation of such positive expectations in the first place depends on the proportionality of bonus and penalty elements. Third, promotion- and hybrid-framed incentives do not by default lead to positive effects, as these are contingent on factors pertaining to contractual clarity. Fourth, the overarching purpose of the contract moderates the effects of contract framing on supplier responses.Research limitations/implications The study contributes to contracting research by showing how the framing of performance incentives influences supplier behavioural and relational responses. It also extends the existing literature on contract framing by examining the effects of hybrid-framed incentives, and stressing that contract framing should be considered in joint with the clarity and overall purpose of the contract to elicit desired supplier behaviours.Practical implications Managers of buying firms may differentiate their approach to contract framing depending on the type of supplier relationship in focus. Furthermore, effective design of promotion- and hybrid-framed incentives requires attention to: realistic performance targets (on the short, medium and long term); salient bonuses related to these targets; incentive structures that appropriately balance rewards and risks; and: mechanisms that explicate and consider uncontrollable factors in the calculation of bonus-malus payments.Originality/value The paper extends the literature stressing the psychological impact of contracts on buyer-supplier relationships by highlighting that contractual clarity and the overarching purpose of the contract moderate the effects of contract framing on supplier behavioural and relational responses.

AB - Purpose The purpose of this paper is to investigate the effects that the framing of contractual performance incentives have on supplier's behavioural and relational responses and on the buyer-supplier relationship.Design/methodology/approach The authors conducted three in-depth case studies of contractual relationships, which exhibit differences in terms of how performance incentives are framed, i.e., using promotion, prevention and hybrid frames, respectively. The study involved 38 semi-structured interviews and content analysis of contract agreements.Findings First, while promotion-framed incentives lead to positive supplier responses and improved relationships, prevention-framed incentives result in negative responses and deteriorating relations. Second, hybrid-framed incentives can lead to productive supplier responses when positive ex ante expectations are met, although the creation of such positive expectations in the first place depends on the proportionality of bonus and penalty elements. Third, promotion- and hybrid-framed incentives do not by default lead to positive effects, as these are contingent on factors pertaining to contractual clarity. Fourth, the overarching purpose of the contract moderates the effects of contract framing on supplier responses.Research limitations/implications The study contributes to contracting research by showing how the framing of performance incentives influences supplier behavioural and relational responses. It also extends the existing literature on contract framing by examining the effects of hybrid-framed incentives, and stressing that contract framing should be considered in joint with the clarity and overall purpose of the contract to elicit desired supplier behaviours.Practical implications Managers of buying firms may differentiate their approach to contract framing depending on the type of supplier relationship in focus. Furthermore, effective design of promotion- and hybrid-framed incentives requires attention to: realistic performance targets (on the short, medium and long term); salient bonuses related to these targets; incentive structures that appropriately balance rewards and risks; and: mechanisms that explicate and consider uncontrollable factors in the calculation of bonus-malus payments.Originality/value The paper extends the literature stressing the psychological impact of contracts on buyer-supplier relationships by highlighting that contractual clarity and the overarching purpose of the contract moderate the effects of contract framing on supplier behavioural and relational responses.

KW - Buyer-supplier relationships

KW - Contracting

KW - Framing

KW - Performance incentives

U2 - 10.1108/IJOPM-10-2017-0586

DO - 10.1108/IJOPM-10-2017-0586

M3 - Journal article

VL - 39

SP - 190

EP - 213

JO - International Journal of Operations and Production Management

JF - International Journal of Operations and Production Management

SN - 0144-3577

IS - 2

ER -