Effects of a Tournament Incentive Plan Incorporating Managerial Discretion in a Geographically Dispersed Organization

51 Pages Posted: 22 Feb 2016 Last revised: 13 Oct 2018

See all articles by Carolyn Deller

Carolyn Deller

University of Pennsylvania - The Wharton School

Tatiana Sandino

Harvard Business School - Accounting and Control

Date Written: September 13, 2018

Abstract

Using retail chain data, we study the effects of a tournament incentive plan based primarily on objective performance, but incorporating managerial discretion in the selection of winners. In principle, such plans could motivate employees to perform both at a high level, based on objective criteria, and in accordance with company values, considered via managerial discretion. However, such plans could be counterproductive if enough participants (especially those who don’t win) perceive that subjectivity (introduced via discretion) adds unfairness. We show that, on average, the tournament incentive plan was associated with improved store sales. We also find that such plans can be more beneficial for geographically distant participants, where the potential for improving alignment is greater. Lastly, we find some evidence that participants’ resource constraints (potentially affecting unfairness concerns) can impact outcomes under the plan.

Keywords: Tournaments; subjectivity; discretion; fairness; geographic distance; company values; retail chains.

Suggested Citation

Deller, Carolyn and Sandino, Tatiana, Effects of a Tournament Incentive Plan Incorporating Managerial Discretion in a Geographically Dispersed Organization (September 13, 2018). Harvard Business School Accounting & Management Unit Working Paper No. 16-087. Available at SSRN: https://ssrn.com/abstract=2736311 or http://dx.doi.org/10.2139/ssrn.2736311

Carolyn Deller

University of Pennsylvania - The Wharton School ( email )

1311 Steinberg Hall - Dietrich Hall
3620 Locust Walk
Philadelphia, PA 19104-6365
United States

Tatiana Sandino (Contact Author)

Harvard Business School - Accounting and Control ( email )

367 Morgan Hall
Soldiers Field
Boston, MA 02163
United States
617-495-0625 (Phone)

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