Complementarity of Performance Pay and Task Allocation

Bryan Hong, Lorenz Kueng, Mu-Jeung Yang

Research output: Working paper

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 decision-making 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.
Original languageEnglish (US)
PublisherSocial Science Research Network (SSRN)
Number of pages30
StatePublished - Jan 5 2016

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Complementarity
Task allocation
Performance pay
Decision making
Decentralization
Employees
Authority
Income tax
Centralization
Tax progressivity
Incentives
Internal organization
Endogeneity
Management practices
Regional variation

Cite this

Hong, B., Kueng, L., & Yang, M-J. (2016). Complementarity of Performance Pay and Task Allocation. Social Science Research Network (SSRN).
Hong, Bryan ; Kueng, Lorenz ; Yang, Mu-Jeung. / Complementarity of Performance Pay and Task Allocation. Social Science Research Network (SSRN), 2016.
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Hong, B, Kueng, L & Yang, M-J 2016 'Complementarity of Performance Pay and Task Allocation' Social Science Research Network (SSRN).

Complementarity of Performance Pay and Task Allocation. / Hong, Bryan; Kueng, Lorenz; Yang, Mu-Jeung.

Social Science Research Network (SSRN), 2016.

Research output: Working paper

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Hong B, Kueng L, Yang M-J. Complementarity of Performance Pay and Task Allocation. Social Science Research Network (SSRN). 2016 Jan 5.