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http://ssrn.com/abstract=1655748
 
 

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Task Assignment and Variable Pay Ratio


Christian Hofmann


Ludwig-Maximilians-Universität München - Faculty of Business Administration (Munich School of Management)

Anna Rohlfing-Bastian


University of Tuebingen - Faculty of Economics and Social Sciences

December 6, 2010

AAA 2011 Management Accounting Section (MAS) Meeting Paper

Abstract:     
This paper employs a LEN-model with multiple tasks and multiple agents to investigate the decision of how to assign the responsibility for synergistic tasks in an environment where an aggregate performance measure is used for incentive design. Considering task assignment as an endogenous variable, we develop a simultaneous solution for the optimal task assignment and the managers’ compensation characterized by the variable pay ratio (i.e., variable pay in relation to total pay). Our analysis shows that a manager’s variable pay ratio depends on the number and type of tasks this manager has to perform, the compensation of other managers on the same hierarchical level, and how responsibility of tasks is assigned to them. For example, we find that a manager’s compensation structure is adjusted even if he is not directly affected by a task re-assignment decision. Hence, our results emphasize the interrelation of task assignment and incentive compensation and they suggest to control for firm-wide task assignments in empirical compensation studies.

Number of Pages in PDF File: 35

Keywords: Task Assignment, Principal-Agent Analysis, Variable Pay Ratio

JEL Classification: M54, M41, D82, J41

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Date posted: August 10, 2010 ; Last revised: December 7, 2010

Suggested Citation

Hofmann, Christian and Rohlfing-Bastian, Anna, Task Assignment and Variable Pay Ratio (December 6, 2010). AAA 2011 Management Accounting Section (MAS) Meeting Paper. Available at SSRN: http://ssrn.com/abstract=1655748 or http://dx.doi.org/10.2139/ssrn.1655748

Contact Information

Christian Hofmann
Ludwig-Maximilians-Universität München - Faculty of Business Administration (Munich School of Management) ( email )
Kaulbachstr. 45
Munich, 80539
Germany
Anna Rohlfing-Bastian (Contact Author)
University of Tuebingen - Faculty of Economics and Social Sciences ( email )
Mohlstrasse 36
Tuebingen, Baden-Wuerttemberg 72074
Germany
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