The interactive effects of manager narcissism and the framing of the manager’s incentive scheme on employee effort

Abstract

This paper studies how employee effort depends upon the superior manager’s level of narcissism and the framing of the manager’s incentive scheme. In an online experiment with 356 employee participants, we manipulate the description of the manager narcissism (high or low) and the framing of the manager’s compensation scheme (bonus or penalty) and examine the joint effect of these two factors on employee effort to help the manager reach their objectives. Results show that employees exert less (more) effort when manager narcissism is high (low). This effect is mediated by employees’ feelings of envy towards the superior. In line with recent research on the cascading effect of management compensation, we also find that a manager’s penalty contract has a negative effect on employee effort when manager narcissism is high. Our results have important implications for compensation design in business practice.

Keywords: narcissism, contract frame, cascading controls

JEL Classification: M41, M52