Few researchers address the theoretical foundations of incentive system design for corporate entrepreneurship. In fact, we found only one prior published study that models the corporate venturing process, including the reward system, from a theoretical perspective. Applying agency theory, Jones and Butler (1992) found that innovations in organizational structure and organizational controls and rewards can mitigate and solve agency problems. However, they admit their model is limited and recommend that behavioral and social factors should be included.

Answering their call, we propose an expanded incentive system model that is rooted in both economic (agency and prospect, a.k.a. behavioral agency model) and behavioral (goal and expectancy) theories. We hypothesize that risk (pay risk and employment risk) and effort (extra effort and expected success) will moderate the basic relationship between incentives (profit sharing) and the decision to participate in a new corporate venture.