Expertise and Discretionary Bonus Decisions

Management Science, Forthcoming

44 Pages Posted: 4 Aug 2018 Last revised: 20 Aug 2019

See all articles by Margaret A. Abernethy

Margaret A. Abernethy

University of Melbourne, Department of Accounting

Chung-Yu Hung

University of Melbourne, Department of Accounting

Laurence van Lent

Frankfurt School of Finance & Management gemeinnützige GmbH - Accounting Department

Date Written: August 20, 2019

Abstract

We examine the association between managers’ expertise and their discretionary bonus decisions in a hospital setting. We hypothesize that high-expertise managers make decisions that encourage cooperation among their subordinates. However, low-expertise managers cannot do so because their lower levels of knowledge, experience, and domain expertise prevent them from having sufficient personal influence to persuade other professionals to cooperate. We find that high-expertise managers make two types of bonus decisions: (1) keep a smaller share of the bonus pool than what they are entitled to retain and (2) allocate the remainder to subordinates more evenly after adjusting for the underlying heterogeneity in their productivity. We also find evidence that high-expertise managers whose bonus decisions reflect their support for cooperation have higher department performance than all other managers.

Keywords: discretionary bonus decisions; manager expertise; health care

JEL Classification: D22; M52; I19

Suggested Citation

Abernethy, Margaret A. and Hung, Chung-Yu and van Lent, Laurence, Expertise and Discretionary Bonus Decisions (August 20, 2019). Management Science, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3214065 or http://dx.doi.org/10.2139/ssrn.3214065

Margaret A. Abernethy

University of Melbourne, Department of Accounting ( email )

Victoria
Melbourne, Victoria 3010 3010
Australia
+61 3 8344 7655 (Phone)
+61 3 9349 2397 (Fax)

Chung-Yu Hung (Contact Author)

University of Melbourne, Department of Accounting ( email )

198 Berkeley Street
Melbourne, Victoria 3053
Australia

Laurence Van Lent

Frankfurt School of Finance & Management gemeinnützige GmbH - Accounting Department ( email )

Adickesallee 32-34
Frankfurt, 60322
Germany
+4969154008531 (Phone)

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