Business Publications
Document Type
Article
Publication Date
3-2019
Volume
65
Issue
11
Journal
Management Science
First Page
4951
URL with Digital Object Identifier
https://doi.org/10.1287/mnsc.2018.3193
Last Page
5448
Abstract
Complementarity between different management practices has been argued to be one potential explanation for persistent performance differences across firms. Using detailed data on internal organization for a nationally representative sample of firms, we empirically test for the existence of complementary joint adoption of performance pay incentives and decentralization of decisionmaking authority for tasks. To address endogeneity concerns, we exploit regional variation in income tax progressivity as an instrument for the adoption of performance pay. We find systematic evidence of complementarity between performance pay and decentralization of decision-making from principals to employees. However, adopting performance pay also leads to centralization of decision-making authority from non-managerial to managerial employees. The findings suggest that performance pay adoption leads to a concentration of decision-making control at the managerial employee level, as opposed to a general movement towards more decentralization throughout the organization.
Notes
This is the authors' manuscript of a paper published in the journal Management Science. The published version is available at https://doi.org/10.1287/mnsc.2018.3193