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Effects of a Tournament Incentive Plan Incorporating Managerial Discretion in a Geographically Dispersed Organization

Author

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  • Carolyn Deller

    (The Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania 19104;)

  • Tatiana Sandino

    (Harvard Business School, Harvard University, Boston, Massachusetts 02163)

Abstract

Using retail chain data, we study the effects of a tournament incentive plan based primarily on objective performance, but incorporating managerial discretion in the selection of winners. In principle, such plans could motivate employees to perform both at a high level, based on objective criteria, and in accordance with company values, considered via managerial discretion. However, such plans could be counterproductive if enough participants (especially those who do not win) perceive that subjectivity (introduced via discretion) adds unfairness. We show that, on average, the tournament incentive plan was associated with improved store sales. We also find that such plans can be more beneficial for geographically distant participants, where the potential for improving alignment is greater. Lastly, we find some evidence that participants’ resource constraints (potentially affecting unfairness concerns) can impact outcomes under the plan.

Suggested Citation

  • Carolyn Deller & Tatiana Sandino, 2020. "Effects of a Tournament Incentive Plan Incorporating Managerial Discretion in a Geographically Dispersed Organization," Management Science, INFORMS, vol. 66(2), pages 911-931, February.
    • Handle: RePEc:inm:ormnsc:v:66:y:2020:i:2:p:911-931
    DOI: 10.1287/mnsc.2018.3214
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