Cascading Controls: The Effects of Manager Incentive Frame on Subordinate Behavior

• In Event: Use of Online Laborers and Control Systems Research

Abstract

We investigate the effect of managers’ incentives on the behavior of subordinate employees. In a setting where subordinates choose a level of contribution toward the manager’s objectives, we consider two factors that theory suggests will interact to affect subordinates’ choice: 1) the nature of the manager-subordinate relationship and; 2) the framing of the manager’s incentives as either a bonus or a penalty. Drawing on the leader-member exchange literature and prospect theory, we predict and find that subordinates contribute the greatest (least) amount when in a high quality (low quality) manager-subordinate relationship and the manager is threatened with a penalty. Our findings document that relationship quality is a key determinant of the total organizational effect of a control choice. In a typical one-to-many hierarchy, our results suggest that an incentive placed on a manager may cascade down the organization to have significant impact on the lower level employees, amplifying its effects. In addition, we document that the frame of the manager control interacts with the manager-subordinate relationship such that the cascading effect is either a benefit to the organization, in the form of increased subordinate contribution, or a cost, in the form of withheld subordinate contribution. Taken together, we provide valuable understanding to the designers of control systems in practice and advance the literature investigating the interaction of controls in an organizational setting.

Authors

• Margaret H Christ, University of Georgia

• Thomas William Vance, University of Illinois-Urbana-Champaign