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The Flattening Firm: Evidence from Panel Data on the Changing Nature of Corporate Hierarchies

Raghuram G. Rajan

University of Chicago - Booth School of Business; International Monetary Fund (IMF); National Bureau of Economic Research (NBER)

Julie Wulf

Harvard Business School

April 2003

NBER Working Paper No. w9633

Using a detailed database of managerial job descriptions, reporting relationships, and compensation structures in over 300 large U.S. firms we find that the number of positions reporting directly to the CEO has gone up significantly over time. We also find that the number of levels between the lowest managers with profit center responsibility (division heads) and the CEO has decreased and more of these managers are reporting directly to the CEO. Moreover, more of these managers are being appointed officers of the company. It does not seem that divisional heads are handling larger tasks making them important enough to report directly. Instead, our findings suggest that layers of intervening management are being eliminated and the CEO is coming into direct contact with more managers in the organization, even while managerial responsibility is being extended downwards. Consistent with this, we find that the elimination of the intermediate position of Chief Operating Officer accounts for a significant part (but certainly not all) of the increase in CEO reports. It is also accompanied with greater authority being given to divisional managers. The structure of pay is also different in flatter organizations. Pay and long term incentives are becoming more like that in a partnership. Salary and bonus at lower levels are lower than in comparable positions in a tall organization, but the pay differential is steeper to the top. At the same time, employees in flatter organizations seem to have more long term pay incentives like stock and stock options offered to them. Drawing on theories, we offer some conjectures to explain these patterns.

Number of Pages in PDF File: 55

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Date posted: April 19, 2003  

Suggested Citation

Rajan, Raghuram G. and Wulf, Julie, The Flattening Firm: Evidence from Panel Data on the Changing Nature of Corporate Hierarchies (April 2003). NBER Working Paper No. w9633. Available at SSRN: http://ssrn.com/abstract=396693

Contact Information

Raghuram G. Rajan (Contact Author)
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-4437 (Phone)
773-702-0458 (Fax)
International Monetary Fund (IMF) ( email )
700 19th Street NW
Washington, DC 20431
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
773-702-9299 (Phone)
773-702-0458 (Fax)
Julie M. Wulf
Harvard Business School ( email )
Harvard Business School
Boston, MA
United States
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References:  38
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