Supervisor Discretion in Target Setting: An Empirical Investigation

47 Pages Posted: 2 Aug 2008 Last revised: 7 Dec 2009

See all articles by Jasmijn C. Bol

Jasmijn C. Bol

Tulane University - A.B. Freeman School of Business

Timothy M. Keune

University of Dayton - Accounting

Ella Mae Matsumura

University of Wisconsin-Madison - Department of Accounting and Information Systems

Jae Yong Shin

Seoul National University - College of Business Administration

Multiple version iconThere are 2 versions of this paper

Date Written: November 30, 2009

Abstract

In a setting where total sales targets are dictated by corporate headquarters, we study how supervisors allocate sales targets to individual stores. Specifically, we analyze whether supervisors strategically use their discretion in the target-setting process to deal with compensation contracting issues. We begin by examining whether supervisors use their discretion to manage compensation risk. The results are consistent with the agency prediction that supervisors provide easier targets to stores that face higher levels of store-specific risk. Next, we examine whether discretion is used to mitigate fairness concerns. The results suggest that, consistent with behavioral arguments, supervisors use their discretion to deal with fairness issues, even if the area in which the supervisor is granted discretion is not the source of the fairness concerns. Finally, we analyze whether supervisors use their discretion in the target-setting process to reduce their potential confrontation costs. Consistent with research in psychology, we find that supervisors provide easier targets to store managers with relatively higher hierarchical status.

Keywords: Discretion, sales target, target-setting process, compensation risk, fairness concerns, confrontation costs

JEL Classification: M12, M40, M46, M47, J31, J33

Suggested Citation

Bol, Jasmijn C. and Keune, Timothy M. and Matsumura, Ella Mae and Shin, Jae Yong, Supervisor Discretion in Target Setting: An Empirical Investigation (November 30, 2009). AAA 2009 Management Accounting Section (MAS) Meeting Paper, Available at SSRN: https://ssrn.com/abstract=1196722 or http://dx.doi.org/10.2139/ssrn.1196722

Jasmijn C. Bol

Tulane University - A.B. Freeman School of Business ( email )

7 McAlister Drive
New Orleans, LA 70118
United States

Timothy M. Keune

University of Dayton - Accounting ( email )

Dayton, OH 45469
United States

Ella Mae Matsumura

University of Wisconsin-Madison - Department of Accounting and Information Systems ( email )

School of Business
975 University Avenue
Madison, WI 53706
United States
608-262-9731 (Phone)
608-265-6040 (Fax)

Jae Yong Shin (Contact Author)

Seoul National University - College of Business Administration ( email )

Seoul, 151-742
Korea, Republic of (South Korea)

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