Managerial Discretion and Task Interdependence in Teams

52 Pages Posted: 16 Aug 2014 Last revised: 2 Jul 2015

See all articles by Markus C. Arnold

Markus C. Arnold

University of Bern - Institute for Accounting

Ivo Tafkov

Georgia State University

Multiple version iconThere are 3 versions of this paper

Date Written: June 30, 2015

Abstract

Prior research suggests that providing managers with discretion over team bonus allocation can improve team performance because it enhances the relation between team members’ contributions to team output and their rewards. This study investigates whether task interdependence influences managers’ ability to enhance this relation and, therefore, alters the effect of managerial discretion over compensation on team performance. Task interdependence reflects the degree to which the increase in team performance resulting from a team member’s effort depends on the efforts and skills of the other team members. Consistent with our predictions, we find that, managers are able to use their discretion over compensation to enhance the relation between team members’ contributions to team output and reward to a greater degree when task interdependence is absent than when task interdependence is present. Also consistent with our predictions, we find that the effect of managerial discretion on team performance depends on task interdependence. Specifically, our results show that managerial discretion over compensation has a positive effect on team performance when task interdependence is absent and negative effect on team performance when task interdependence is present. The results also suggest that predicted effects of task interdependence become more pronounced when task interdependence goes up. Our results have practical implications for firms, which have flexibility in designing their incentive systems in a team environment, because we identify conditions under which the effectiveness of granting managers discretion over team compensation is likely to vary.

Keywords: Team-based incentives, teams, discretion, task interdependence

JEL Classification: M12, M41, M52

Suggested Citation

Arnold, Markus C. and Tafkov, Ivo, Managerial Discretion and Task Interdependence in Teams (June 30, 2015). 2015 AAA Annual Meeting, Available at SSRN: https://ssrn.com/abstract=2480608 or http://dx.doi.org/10.2139/ssrn.2480608

Markus C. Arnold (Contact Author)

University of Bern - Institute for Accounting ( email )

Engehaldenstr. 4
Bern, 3012
Switzerland

Ivo Tafkov

Georgia State University ( email )

35 Broad Street
Atlanta, GA 30303-3083
United States

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