The Flattening Firm: Evidence from Panel Data on the Changing Nature of Corporate Hierarchies

Rajan, Raghuram G.; Wulf, Julie

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The Flattening Firm: Evidence from Panel Data on the Changing Nature of Corporate Hierarchies

NBER Working Paper No. w9633

44 Pages Posted: 19 Apr 2003 Last revised: 29 Oct 2022

See all articles by Raghuram G. Rajan

Raghuram G. Rajan

University of Chicago - Booth School of Business; International Monetary Fund (IMF); National Bureau of Economic Research (NBER)

Julie Wulf

Harvard Business School

There are 2 versions of this paper

Date Written: April 2003

Abstract

Using a detailed database of managerial job descriptions, reporting relationships, and compensation structures in over 300 large U.S. firms, we find that firm hierarchies are becoming flatter. The number of positions reporting directly to the CEO has gone up significantly over time while the number of levels between the lowest managers with profit center responsibility (division heads) and the CEO has decreased. More of these managers now report directly to the CEO and more are being appointed officers of the firm, reflecting a delegation of authority. Moreover, division managers who move closer to the CEO receive higher pay and greater long term incentives, suggesting that all this is not simply a change in organizational charts with no real consequences. We discuss several possible explanations that may account for some of these changes.

Suggested Citation: Suggested Citation

Rajan, Raghuram G. and Wulf, Julie M., The Flattening Firm: Evidence from Panel Data on the Changing Nature of Corporate Hierarchies (April 2003). NBER Working Paper No. w9633, Available at SSRN: https://ssrn.com/abstract=396693