Methods
The analysis consists of a classroom experiment where MBA students (“boards”) play a strategic decision-making game to maximize profits, societal, and environmental performance. Boards have different incentives. The experiment is used to assess how these incentives affect board decision-making dynamics and strategy discussions. 

Results
Tentative findings suggest that incentives directly affect group strategy discussions and decisions. Participants were allocated to a group, either with a target more focused on profit, ESG or R&D. The result of the experiment shows that participants with a profit target obtained the highest profits but that these boards also had the most negative impact on the environment and the lowest social impact. Boards with profit targets also address financial goals more commonly in their strategy discussions. A similar result holds for boards with an ESG target: they have the best environmental and social impact and focus more on ESG in their strategy discussions. Finally, boards with an R&D target have the highest outcome in R&D but do not mention necessarily mention R&D more in their strategy. These results are of note given that boards could ignore their board-specific objectives and still win the game – in fact, dominating strategies existed.  

In the pilot experiment, participant preferences, board composition and heterogeneity in board preferences seem unrelated to firm outcomes and board strategy discussions. This is at odds with our prior laboratory experiment, which documents a relationship between executive preferences for time, risk and pro-social behavior and firm outcomes. This non-result here may be due to the comparatively small sample size employed in this pilot version of the classroom experiment. 

This report
Reward Value – an NGO focused on reforming executive compensation practices – has commissioned SEO Amsterdam Economics to assess current and potential new models of executive pay. As such, this Research Memorandum is a follow-up to our prior studies into executive compensation. In these prior studies by SEO, we have established the empirical relation between pay and (non-)performance, both from an observational and an experimental perspective (for the experimental perspective, see SEO, 2022). These prior studies highlighted that executive compensation may spur different firm outcomes (both in terms of long-term financial outcomes, as well as in the ESG space), but also left open questions, specifically regarding the role of collaboration in boards, the role of board composition, as well as the way in which differences in firm outcomes are achieved through the process of discussing and determining firm strategy. 

We have performed a pilot classroom experiment aimed at directly measuring the changes in board strategy discussions and decision-making processes. The main aim of the pilot study was to test the experiment and to ensure that the experiment results are useful and reliable. After the first experiment conducted at IMD (Switzerland) we improved the experiment and conducted this new version at Nyenrode (the Netherlands). 

SEO collaborated with Kenan Amatradjak for programming the board game experiment.