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RECH1: Controlling
Donnerstag, 19.03.2020:
12:30 - 14:00

Chair der Sitzung: Andrea Szczesny, Julius-Maximilians-Universität Würzburg
Ort: Virtueller Raum 4

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How corporate charitable giving reduces the hidden costs of formal control

Bernhard Reichert1, Matthias Sohn2

1Virginia Commonwealth University, USA; 2Europa-Universität Viadrina Frankfurt (Oder), Deutschland

Formal control systems are a common instrument in business to align interests of employees with those of managers. Prior research, however, suggests that employees perceive formal control systems as a sign of distrust and restraint, which has unintended negative effects like decreased work effort by employees (e.g., Falk and Kosfeld 2006; Christ 2013). We draw on the halo effect and propose that corporate charitable giving alters employees’ perception of and reaction to formal controls. In a laboratory experiment, we test the effect of corporate charitable giving by a company on the perception of the trustworthiness of the manager implementing a control system, the perception of the control system, and employee effort. We find evidence – consistent with the halo effect – that charitable giving by a company leads to a higher level of employee trust in the manager, a more positive assessment of formal control, and higher employee effort when controls are present than when a company does not engage in charitable giving. Our findings potentially explain why some companies experience negative employee reactions to control systems while other companies continue to enforce control systems without such negative reactions.

Subordinates’ effort to help or harm a superior manager, manager’s narcissism and the framing of managers’ incentive

Miriam Maske1, Matthias Sohn2, Bernhard Hirsch1

1Universität der Bundeswehr München, Deutschland; 2Europa-Universität Viadrina Frankfurt (Oder)

Narcissism has become the most discussed personality trait of recent times and has the potential to influence organizational culture and control systems. This study aims to link the literature of narcissism with research on incentive systems design. Specifically, we propose that subordinates’ work effort depends upon their superior manager’s level of narcissism and the superior manager’s compensation scheme. In a fully incentivized online experiment with 329 German employees, we manipulate managers’ level of narcissism (yes or no) and the framing of managers’ compensation scheme (bonus or penalty). The results first point out that subordinates generally show less effort when the subordinate is a narcissist. Second, we find that relative to a manager’s bonus contract, a penalty contract has a negative effect on a subordinate’s effort when leader’s narcissism is high. Furthermore, our data indicate an indirect, but positive effect between leader narcissism and subordinates’ effort to harm through followers’ malicious envy. This underlines the negative consequences of narcissism on the leader-follower relations and has important implications for compensation design in business practice.

Cherry picking for self-enhancement – A comparison between manager’s KPI request from self-reporting systems and management accountants and the effect on decision quality

Sascha Matanovic, Arnt Wöhrmann

Justus-Liebig-Universität Gießen, Deutschland

Management accounting serves two key responsibilities: facilitating decisions and influencing decisions, e.g., by designing compensation systems. The focus of this study is the latter, and the drivers of risk-taking behavior are examined. More precisely, we investigate specific incentive and control systems, i.e., compensation caps and formal justification requirements, that are intended to steer risk-taking. Compensation systems that restrict the earnings potential of decision-makers (caps) are widespread across the business world and have been implemented to influence risk-taking behavior, especially after the financial crisis. Therefore, we conduct an experiment to examine the effect of compensation caps on risk-taking considering ex-ante risk preferences. Second, we analyze the interaction effect of caps (incentive-based) and accountability through justification requirements (control-based) on risk-taking. Rational choice theory predicts that caps should only restrict risk-seeking decision-makers from taking undesired risk but should not affect risk-averse decision-makers. Applying the compromise effect rooted in psychology, however, we predict that risk-averse decision-makers, who—according to their risk preferences—should not be affected by the cap, also take less risk when their compensation is capped. We posit that this effect is intensified when the justification pressure is high. Our results support both hypotheses. We discuss the implications for theory and practice.

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