The Relationship between Delegation and Incentives Across Occupations: Evidence and Theory

Abstract

A large literature, both theoretical and empirical, suggests that delegation of authority and incentives should have a positive relationship. Using data from a large cross section of British establishments, we show that the positive relationship between incentives and delegation that has been consistently documented in the empirical literature masks a stark difference between job types. We classify jobs into two categories: complex jobs include professional, technical and scientific occupations and simple jobs consist of all other occupations with a lower-level code in the Standard Occupational Classification (SOC) system. We find that for simple jobs, the relationship between delegation and incentives is positive as has been found in the previous literature, whereas for complex jobs it is negative. To explain this negative relationship for complex jobs, we develop a model where tasks have a risk-return tradeoff and where a single performance measure has to induce both task selection and effort. We find that if tasks vary sufficiently by risk and return and if effort is noisy to measure, then delegation and incentives have a negative relationship.

Does Delegation Increase Worker Training?

“…While this measure is subjective, it has been shown to provide a reasonable proxy for delegation to workers (see De Varo and Kurtulus ; De Varo and Prasad ). Yet, it differs in critical ways from other measures of delegation.…”

“…Nagar (), Colombo and Delmastro (), Foss and Laursen (), and De Varo and Kurtulus () demonstrate that incentive payments for managers and for workers are associated with delegation. Yet, De Varo and Prasad () argue that noisy incentive pay may induce risk‐averse agents to select suboptimal tasks. For instance, surgeons may not operate on high‐risk patients.…”

“…Thus, we take the most frequently occurring worker response to reflect the degree of delegation in that workplace. 17 While this measure is subjective, it has been shown to provide a reasonable proxy for delegation to workers (see De Varo and Kurtulus 2010;De Varo and Prasad 2015). Yet, it differs in critical ways from other measures of delegation.…”

Performance Pay and Work-Related Health Problems

“…An empirical literature has established a positive relationship between performance pay and the delegation of worker decision-making authority. (See, for example, MacLeod and Parent 1999;Nagar 2002;Colombo and Delmastro 2004;Foss and Laursen 2005;Wulf 2007;Itoh, Kikutani, and Hayashida 2008;DeVaro and Kurtulus 2010;and DeVaro and Prasad 2015. ) As decision-making authority shifts down the organizational hierarchy in the wake of performance pay, workers acquire greater control over decisions related to production (including the pace and intensity of work), which could have implications for the likelihood of work-related illness or injury.…”

“…8 The discussion assumes the worker has only a single choice variable, effort. More generally, workers might additionally choose among discrete projects or actions that vary in their riskiness to themselves or to others, as presented inDeVaro and Prasad (2015).…”