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AUTHORITY, RISK, AND PERFORMANCE INCENTIVES: EVIDENCE FROM DIVISION MANAGER POSITIONS INSIDE FIRMS -super-

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  • JULIE WULF

Abstract

I show that performance incentives vary by decision-making authority of division managers. For division managers with broader authority, i.e., those designated as corporate officers, both the sensitivity of pay to global performance measures and the relative importance of global to local measures are larger, relative to non-officers. There is no difference in sensitivity of pay to local measures by officer status. These results support theories suggesting that authority over project selection combined with incentives designed to maximize firm performance, as well as induce effort for the division, are important in incentive design for division managers. Consistent with earlier findings, the evidence strongly supports one of the main predictions of the principal-agent model, that is, a negative tradeoff between risk and incentives. Copyright 2007 Blackwell Publishing Ltd..

Suggested Citation

  • Julie Wulf, 2007. "AUTHORITY, RISK, AND PERFORMANCE INCENTIVES: EVIDENCE FROM DIVISION MANAGER POSITIONS INSIDE FIRMS -super-," Journal of Industrial Economics, Wiley Blackwell, vol. 55(1), pages 169-196, March.
  • Handle: RePEc:bla:jindec:v:55:y:2007:i:1:p:169-196
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    Cited by:

    1. Liu, Christopher C. & Stuart, Toby, 2014. "Positions and rewards: The allocation of resources within a science-based entrepreneurial firm," Research Policy, Elsevier, vol. 43(7), pages 1134-1143.
    2. Carlos Barros & Ade Ibiwoye, 2012. "Performance, heterogeneity and managerial efficiency of African airports: the Nigerian Case," CEsA Working Papers 106, CEsA - Center for African, Asian and Latin American Studies.
    3. Jed De Varo & Suraj Prasad, 2015. "The Relationship between Delegation and Incentives Across Occupations: Evidence and Theory," Journal of Industrial Economics, Wiley Blackwell, vol. 63(2), pages 279-312, June.
    4. repec:rsr:supplm:v:65:y:2017:i:6:p:174-183 is not listed on IDEAS
    5. Alberto Bayo-Moriones & Jose E. Galdon-Sanchez & Sara Martinez-de-Morentin, 2017. "Performance Measurement and Incentive Intensity," Journal of Labor Research, Springer, vol. 38(4), pages 496-546, December.
    6. Schöttner, Anja & Rohlfing-Bastian, Anna, 2015. "Optimal Allocation of Decision-Making Authority and the Provision of Incentives under Uncertainty," Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113200, Verein für Socialpolitik / German Economic Association.
    7. Graham, John R. & Harvey, Campbell R. & Puri, Manju, 2015. "Capital allocation and delegation of decision-making authority within firms," Journal of Financial Economics, Elsevier, vol. 115(3), pages 449-470.
    8. Canice Prendergast, 2015. "The economics of wild goose chases," RAND Journal of Economics, RAND Corporation, vol. 46(1), pages 146-164, March.
    9. Emilie R. Feldman, 2016. "Managerial compensation and corporate spinoffs," Strategic Management Journal, Wiley Blackwell, vol. 37(10), pages 2011-2030, October.
    10. Inderst, Roman, 2009. "Innovation management in organizations," European Economic Review, Elsevier, vol. 53(8), pages 871-887, November.
    11. Grund, Christian & Sliwka, Dirk, 2010. "Evidence on performance pay and risk aversion," Economics Letters, Elsevier, vol. 106(1), pages 8-11, January.
    12. Ben-Ner, Avner & Kong, Fanmin & Lluis, Stéphanie, 2012. "Uncertainty, task environment, and organization design: An empirical investigation," Journal of Economic Behavior & Organization, Elsevier, vol. 82(1), pages 281-313.
    13. Christos Bilanakos & John S. Heywood & John Sessions & Nikolaos Theodoropoulos, 2016. "Delegation and worker training," University of Cyprus Working Papers in Economics 06-2016, University of Cyprus Department of Economics.
    14. Jed DeVaro & Antti Kauhanen, 2016. "An “Opposing Responses” Test of Classic versus Market-Based Promotion Tournaments," Journal of Labor Economics, University of Chicago Press, vol. 34(3), pages 747-779.
    15. repec:bla:abacus:v:52:y:2016:i:4:p:685-771 is not listed on IDEAS
    16. repec:bla:indres:v:56:y:2017:i:3:p:411-426 is not listed on IDEAS
    17. repec:rsr:supplm:v:65:y:2017:i:5:p:221-229 is not listed on IDEAS
    18. repec:kap:sbusec:v:50:y:2018:i:1:d:10.1007_s11187-017-9885-3 is not listed on IDEAS

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