What is the best way for managers to ensure that their workers’ conduct is in the interest of the company? If you thought performance bonuses, C Kirabo Jackson and Henry S Schneider want you to think again. In experiments conducted at an auto repair chain, they found that managerial control was just as effective in driving up productivity (by extension, revenues) as hiking commissions by 10%. The researchers add that increased managerial control also protected the organisation from moral hazard on part of the workers, which means actions on the mechanics’ part that might lead to loss of revenue. The researchers say that with managerial control, mechanics worked longer and harder, but with performance-linked incentives, they shifted to high-end repair jobs, often pulling a fast one on customers.  

Title: Reducing Moral Hazard in Employment Relationships: Experimental Evidence on Managerial Control and Performance Pay

Source: The National Bureau of Economic Research