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Compensation and Span of Control in Hierarchical Organizations

Author

Listed:
  • Pedro Ortin-Angel

    (Universidad Autonoma de Barcelona)

  • Vicente Salas-Fumas

    (Universidad de Zaragoza)

Abstract

This article presents evidence on the relationship between compensation ratios and spans of control within hierarchical organizations. We find that compensation ratios are lower than span of control at any position within the hierarchy, which is consistent with an elasticity of compensation to a number of subordinates lower than one. Managers' human capital endowments determine a significant part of the salary differences throughout hierarchical levels, as predicted by models of talent allocation in hierarchies. Differences in the size of firms should be attributed more to differences in their number of hierarchical levels than to variations in the span of control.

Suggested Citation

  • Pedro Ortin-Angel & Vicente Salas-Fumas, 2002. "Compensation and Span of Control in Hierarchical Organizations," Journal of Labor Economics, University of Chicago Press, vol. 20(4), pages 848-876, October.
  • Handle: RePEc:ucp:jlabec:v:20:y:2002:i:4:p:848-876
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    References listed on IDEAS

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    1. Jonathan S. Leonard, 1990. "Executive Pay and Firm Performance," ILR Review, Cornell University, ILR School, vol. 43(3), pages 13, April.
    2. Eriksson, Tor, 1999. "Executive Compensation and Tournament Theory: Empirical Tests on Danish Data," Journal of Labor Economics, University of Chicago Press, vol. 17(2), pages 262-280, April.
    3. Robert Gibbons & Michael Waldman, 1999. "A Theory of Wage and Promotion Dynamics Inside Firms," The Quarterly Journal of Economics, Oxford University Press, vol. 114(4), pages 1321-1358.
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    Cited by:

    1. Smeets, Valerie & Warzynski, Frederic, 2008. "Too many theories, too few facts? What the data tell us about the link between span of control, compensation and career dynamics," Labour Economics, Elsevier, vol. 15(4), pages 687-703, August.
    2. Teodora Paligorova, 2005. "Czech Managerial Compensations: Why Does It Pay Off to Climb the Corporate Ladder?," CERGE-EI Working Papers wp262, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    3. Hassink, Wolter & Russo, Giovanni, 2010. "The Glass Door: The Gender Composition of Newly-Hired Workers Across Hierarchical Job Levels," IZA Discussion Papers 4858, Institute for the Study of Labor (IZA).
    4. Smeets, Valérie & Warzynski, Frederic, 2006. "Testing Models of Hierarchy: Span of Control, Compensation and Career Dynamics," Working Papers 06-10, University of Aarhus, Aarhus School of Business, Department of Economics.
    5. Elizabeth M. Caucutt & Krishna B. Kumar, 2004. "Evaluating Explanations for Stagnation," Development and Comp Systems 0409002, EconWPA.

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