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Performance effects of managerial discretion
Last registered on June 24, 2016

Pre-Trial

Trial Information
General Information
Title
Performance effects of managerial discretion
RCT ID
AEARCTR-0001374
Initial registration date
June 24, 2016
Last updated
June 24, 2016 12:21 PM EDT
Location(s)
Region
Primary Investigator
Affiliation
University of Cologne
Other Primary Investigator(s)
PI Affiliation
Goethe-University Frankfurt
PI Affiliation
Columbia University
PI Affiliation
Goethe-University, Frankfurt
Additional Trial Information
Status
In development
Start date
2014-01-01
End date
2017-06-30
Secondary IDs
Abstract
Understanding the costs and benefits of discretionary compared to rule-based decision-making is at the core of organizational economics. We set up a field experiment in a network of 241 supermarkets to generate causally interpretable evidence on the trade-offs involved.

Consider a team headed by a store manager M who reports to his principal P. M observes both the aggregate output of the team and individual contributions of its members, whereas P observes only the aggregate output. Should P distribute the reward equally between the team members, thus ignoring M's knowledge of the members' individual contributions, or should P give M the discretion to distribute the reward?

We will allow the managers in randomly selected stores to decide on the bonus distribution within their stores, while in the rest of the stores the bonus will be distributed equally. The size of the bonus to be awarded to each store is determined by a firm-wide rule, which is based on the store's results and performance and is known to all. Our treatment will start on July 1st 2016.

What is the effect of giving discretion over bonus distribution on the store performance outcomes, in particular, sales and employee turnover? On one hand, discretion will make use of the manager's knowledge, which should improve performance. On the other hand, there is a risk of favouritism and a possibility that managers may overlook important interactions between individual contributions.

We expect the treatment effect to be heterogeneous.
External Link(s)
Registration Citation
Citation
Friebel, Guido et al. 2016. "Performance effects of managerial discretion ." AEA RCT Registry. June 24. https://doi.org/10.1257/rct.1374-2.0.
Former Citation
Friebel, Guido et al. 2016. "Performance effects of managerial discretion ." AEA RCT Registry. June 24. https://www.socialscienceregistry.org/trials/1374/history/9021.
Experimental Details
Interventions
Intervention(s)
Intervention Start Date
2016-07-01
Intervention End Date
2016-09-30
Primary Outcomes
Primary Outcomes (end points)
Key outcome variables: Turnover, sales
Other outcome variables: other indicators for store performance, e.g. absenteeism, shrinkage/waste
Primary Outcomes (explanation)
Secondary Outcomes
Secondary Outcomes (end points)
Secondary Outcomes (explanation)
Experimental Design
Experimental Design
Understanding the costs and benefits of discretionary compared to rule-based decision-making is at the core of organizational economics. We set up a field experiment in a network of 241 supermarkets to generate causally interpretable evidence on the trade-offs involved.

Consider a team headed by a store manager M who reports to his principal P. M observes both the aggregate output of the team and individual contributions of its members, whereas P observes only the aggregate output. Should P distribute the reward equally between the team members, thus ignoring M's knowledge of the members' individual contributions, or should P give M the discretion to distribute the reward?

We will allow the managers in randomly selected stores to decide on the bonus distribution within their stores, while in the rest of the stores the bonus will be distributed equally. The size of the bonus to be awarded to each store is determined by a firm-wide rule, which is based on the store's results and performance and is known to all. Our treatment will start on July 1st 2016.

What is the effect of giving discretion over bonus distribution on the store performance outcomes, in particular, sales and employee turnover? On one hand, discretion will make use of the manager's knowledge, which should improve performance. On the other hand, there is a risk of favouritism and a possibility that managers may overlook important interactions between individual contributions.

We expect the treatment effect to be heterogeneous. Given our previous work with our study firm, we expect, among others, the following dimensions of heterogeneity:

1. Our previous treatment (https://www.socialscienceregistry.org/trials/826) in randomly selected store managers asked store managers "to do what they can" to reduce employee turnover. We expect that managers in the treatment stores have experienced a sense of empowerment and will hence be more likely to use the opportunities given proactively, leading to stronger treatment effects. They may also be more concerned with reducing personnel turnover. As a result, the effect of discretion on turnover may be stronger in this group.

2. Ability or willingness of managers to recognize and reward good performance, as measured by a survey. Managers with higher such ability will be using their discretion more effectively. We thus expect a larger effect of discretion on sales in such stores.

3. The amount of discretion previously given to store managers by their regional manager. We see from interviews with regional managers that there is significant variation in the existing discretion that store managers have to distribute the bonus pools in their stores. We expect that higher existing levels of discretion (pre-treatment) reduce the effect of our new managerial discretion treatment.

4. The exposure of store managers to their workers through meetings and other communications pre-treatment. As manager-employee communication should improve the manager's knowledge of their employees, we expect stronger effects of the discretion treatment in stores where managers and employees communicate more often.

5. Store size. Larger stores have more hierarchy and less direct contact between the manager and employees, thus limiting the manager's ability to gather individual performance information. Since the positive effect of the managerial discretion treatment relies on this information, we expect to see less of it in larger stores.
Experimental Design Details
Randomization Method
Stratified randomization; done in office by a computer
Randomization Unit
Stores of a retail chain
Was the treatment clustered?
Yes
Experiment Characteristics
Sample size: planned number of clusters
241 (stores)
Sample size: planned number of observations
241
Sample size (or number of clusters) by treatment arms
66 stores: Manager has no discretion
175 stores: Manager has discretion
Minimum detectable effect size for main outcomes (accounting for sample design and clustering)
IRB
INSTITUTIONAL REVIEW BOARDS (IRBs)
IRB Name
IRB Approval Date
IRB Approval Number
Post-Trial
Post Trial Information
Study Withdrawal
Intervention
Is the intervention completed?
No
Is data collection complete?
Data Publication
Data Publication
Is public data available?
No
Program Files
Program Files
Reports and Papers
Preliminary Reports
Relevant Papers