Estimating Management Practice Complementarity between Decentralization and Performance Pay / Bryan Hong, Lorenz Kueng, Mu-Jeung Yang.

Format:

Book

Author/Creator:

Hong, Bryan.

Contributor:

National Bureau of Economic Research.

Kueng, Lorenz.

Yang, Mu-Jeung.

Series:

Working Paper Series (National Bureau of Economic Research) no. w20845.

NBER working paper series no. w20845

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2015.

Summary:

The existence of complementarity across management practices has been proposed as one potential explanation for the persistence of firm-level productivity differences. However, thus far no conclusive population-level tests of the complementary joint adoption of management practices have been conducted. Using unique detailed data on internal organization, occupational composition, and firm performance for a nationally representative sample of firms in the Canadian economy, we exploit regional variation in income tax progression as an instrument for the adoption of performance pay. We find systematic evidence for the complementarity of performance pay and decentralization of decision-making from principals to employees. Furthermore, in response to the adoption of performance pay, we find a concentration of decision-making at the level of managerial employees, as opposed to a general movement towards more decentralization throughout the organization. Finally, we find that adoption of performance pay is related to other types of organizational restructuring, such as greater use of outsourcing, Total Quality Management, re-engineering, and a reduction in the number of layers in the hierarchy.

Notes:

Print version record

January 2015.