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

Abstract

Prior research has found that narcissistic managers promote unethical and counterproductive employee behaviors in the workplace. We examine how this effect depends upon the framing of the manager’s incentive scheme. In an experiment with 356 employees, we manipulate the description of the manager narcissism (high or low) and the framing of manager’s compensation scheme (bonus or penalty) and examine the joint effect of these two factors on employee effort to help the manager reach her or his objectives. Results show that employees invest less (more) effort when manager narcissism is high (low). Importantly, we also find that a 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