Conflict between Supervisory Monitoring and Monetary Incentives.

• In Event: Management Control System Design Effects

Abstract

Supervisory monitoring and monetary incentives are often used concurrently to mitigate agency conflicts and align agents’ interests with the principal’s. According to agency theory, either mechanism should have a positive impact on performance. However, little evidence exists on how the performance impact of each is affected by the presence of the other. We examine the interaction effect of the two control mechanisms in a high-end retailer, who implemented a field experiment in some of its stores by introducing a monetary incentive scheme for the sales staff in addition to existing supervisory monitoring. Based on analysis of panel data over 60 months for the 10 experimental stores that introduced the monetary incentive scheme and 10 matched stores that did not, we find that although each mechanism by itself has a positive impact on performance, the two forms of control conflict with each other in motivating sales staff and the marginal impact on performance of each mechanism is significantly attenuated by the presence of the other.

Authors

• Shunlan Fang, Kent State University

• Rajiv D Banker, Temple University

• Seok-Young Lee, Sungshin Women’s University