Biased Supervision

Josse Delfgaauw and Michiel Souverijn
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Michiel Souverijn: Erasmus University Rotterdam, the Netherlands

No 14-115/VII, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: Organizations can use subjective performance pay when verifiable performance measures are imperfect. However, this gives supervisors the power to direct employees towards tasks that mainly benefit the supervisor rather than the organization. We cast a principal-supervisor-agent model in a multitask setting, where the supervisor has an intrinsic preference towards specific tasks and may receive soft information on the agent's efforts. We show that subjective performance pay based on evaluation by a biased supervisor has the same distorting effect on the agent's effort allocation across tasks as incentive pay based on an incongruent performance measure. Combining incongruent performance measures with biased supervision can mitigate, but does not always eliminate this distortion. We apply our results to the choice between specialist and generalist middle managers, where a trade-off between monitoring ability and bias arises.

Keywords: subjective performance evaluation; middle managers; incentives; multitasking (search for similar items in EconPapers)
JEL-codes: J24 M12 M52 (search for similar items in EconPapers)
Date: 2014-08-25, Revised 2016-06-16
New Economics Papers: this item is included in nep-hrm and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Journal Article: Biased supervision (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:tin:wpaper:20140115

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