Estimating Management Practice Complementarity between Decentralization and Performance Pay

Bryan Hong, Lorenz Kueng and Mu-Jeung Yang

No 20845, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: 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.

JEL-codes: D2 H32 J33 L2 M1 M5 (search for similar items in EconPapers)
Date: 2015-01
New Economics Papers: this item is included in nep-bec, nep-eff and nep-hrm
Note: EFG LS PE PR
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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