Margaret H. Christ

An Experimental Investigation of the Interactions among Intentions, Reciprocity, and Control

Prior academic research finds that formal controls can cause employees to engage in dysfunctional behaviors (e.g., decreased effort, fraud or theft). This study investigates one specific aspect of formal control that contributes to employees’ negative reactions -- employees’ beliefs about management’s intentions signaled by the control. I use two interactive experiments to examine the effects on employee effort and firm profit of: (1) employees’ beliefs regarding managements’ intentions when implementing control (i.e., perceived intentionality), and (2) employees’ preferences for reciprocity. Consistent with prior literature, I find that formal control can cause employees to exert low effort, resulting in reduced firm profit. However, I find that the adverse consequences only occur when management clearly imposes the control and therefore employees interpret it as a signal of distrust. Further, employees respond negatively to controls that are unambiguously imposed by managers even when managers have entrusted them with a large amount of resources. Thus, when employees are faced with simultaneous, conflicting signals regarding managers’ trust, the distrust signaled by the control crowds out employees’ positive reciprocity. Alternatively, when managers’ intentions for imposing control are ambiguous or clearly do not signal distrust (i.e., it is exogenously imposed), the control does not cause such negative effects. I find that all of the observed effects persist over time. In supplemental analysis, I also find that managers accurately predict that employees’ response to formal control is influenced by their beliefs regarding management’s intentions and entrust fewer resources to employees when they have imposed the control than when it is imposed exogenously. The results of this study suggest that organizations should carefully consider employees’ beliefs about managements’ intentions when implementing formal controls because these beliefs influence employee behavior.

Say-on-Pay and the Differential Effects of Voluntary Versus Mandatory Regimes on Investor Perceptions and Behavior

Say-on-pay is a corporate governance mechanism through which investors cast a non-binding vote on executive compensation. Using an interactive-laboratory experiment, we examine the influence of say-on-pay on investors’ perceptions of procedural fairness, their trust in boards of directors, and their willingness to invest in firms. We consider the effects of say-on-pay both when firms invite say-on-pay voluntarily — which is analogous to the former governance regime — and also when say-on-pay is mandated by law, as recently enacted by the United States Congress. We provide evidence that giving investors a voice in setting executive compensation (i.e., permitting say-on-pay) improves investors’ perceptions of the fairness of compensation-setting procedures, which leads to greater investor trust in boards of directors and increases their willingness to invest. However, we find that say-on-pay’s positive effect on investor behavior is greater when boards give their investors a voice voluntarily than when they are mandated to do so. Further, we find that investors react negatively when directors’ compensation decisions do not conform to investors’ expressed say-on-pay preference.

Compensation or Feedback: Motivating Performance in Multidimensional Tasks

Employees often perform tasks with multiple dimensions. In this study, we examine how employees’ performance on multidimensional tasks differs under different control structures. We conduct two experiments in which we manipulate the presence of compensation controls and the presence of feedback controls on multiple task dimensions. Our findings suggest that when employees are compensated on multiple dimensions they commit to multiple goals and divide their attention among those task dimensions. However, when feedback controls are implemented on one task dimension with compensation controls on another dimension, employees can improve performance on individual dimensions as well as their overall task performance. As a result, we find that employee performance on a multidimensional task can be higher when firms compensate employees on one task dimension and provide feedback on the other task dimension than when firms compensate on both task dimensions. This study highlights the benefits of complementing compensation-based controls (i.e., incentive pay) with non-compensation based controls (e.g., feedback), and provides a theoretical basis to help explain the prevalence of this approach in practice.

Integrated Information Systems, Risk Sharing and Alliance Risk

We examine whether the implementation of formalized controls in strategic alliances is aligned with the extent to which firms integrate their information systems to share information with alliance partners and share risks in an alliance. We theoretically develop the effects of information system integration (ISI) and risk sharing on management’s perceptions of alliance risk (i.e., perceived performance and relational risks) and performance, and include moderating effects of alliance formalization. We find that ISI is associated with relational, but not with performance risk. As alliance formalization increases, however, this effect decreases. Risk sharing is negatively related to both relational and performance risks, while these risks increase when risk sharing is high and the alliance is formalized. Perceptions of alliance risk influence both alliance commitment and performance. Our findings provide insights of how controllable characteristics of alliance relationships (i.e., extent of ISI and risk sharing) affect perceptions of alliance risk and performance.

The Interactive Effects of Perceived Environmental Uncertainty and Control System Type on Managers’ Willingness to Recommend Strategic Change

To remain competitive today, flatter organizations must rely more on middle management in order to adapt in response to demands in the dynamic environments in which they operate. Yet oftentimes organizations do not change even in the face of evolving markets. Using an experiment, we examine how the type of control system used by organizations can shifting middle manager perception of environmental stability as well as influencing their willingness to recommend organizational change. Consistent with our expectations, we find a positive association between middle managers’ perceived environmental uncertainty and their willingness to recommend organizational strategic change. This relationship is moderated by control system type, especially for those middle managers whose perceived environmental uncertainty is low. In particular, we find that relative to interactive control systems, diagnostic control systems are more effective in directing manager attention toward environmental uncertainties and increasing the willingness of those managers to recommend a strategic change. Our results are an initial step in understanding the relationships between environmental uncertainty and control systems and thus can help senior managers design and implement control systems for flatter organizations in dynamic environments where middle managers are critical to initiating adaptive strategic change.