The Joint Effects of a Manager’s Level of Narcissism and Incentive Scheme on Employee Effort

Abstract

Narcissism has become the most heavily discussed personality trait in recent times. However, accounting research on managerial narcissism and its implications for management control system choices, such as incentive schemes, is scarce. Based on Christ and Vance’s (2018) “cascading controls” framework, we propose that employees’ work effort depends upon their manager’s level of narcissism and compensation scheme. In an experiment with 356 employees, we manipulate the description of the managers’ level of narcissism (high or low) and the framing of managers’ 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 (obtain a bonus or avoid a penalty). The results show that employees invest less (more) effort to help the manager when the manager’s narcissism is high (low). This effect is partially mediated by employees’ perception of the relationship quality with their manager and negative feelings towards the narcissistic manager. Importantly, we also show that relative to a manager’s bonus contract, a penalty contract has a negative effect on employee effort when the manager’s narcissism is high. Our results underline the negative consequences of narcissism for leader-follower relations and have important implications for management compensation design in business practice.

Keywords: narcissism, contract frame, cascading controls, workplace envy, LMX

JEL Classification: M41, M52