Expertise and Discretionary Bonus Decisions
Management Science, Forthcoming
44 Pages Posted: 4 Aug 2018 Last revised: 21 Jul 2020
Date Written: August 20, 2019
We examine the association between managers’ expertise and their discretionary bonus decisions in a hospital setting. We hypothesize that high-expertise managers make decisions that encourage cooperation among their subordinates. However, low-expertise managers cannot do so because their lower levels of knowledge, experience, and domain expertise prevent them from having sufficient personal influence to persuade other professionals to cooperate. We find that high-expertise managers make two types of bonus decisions: (1) keep a smaller share of the bonus pool than what they are entitled to retain and (2) allocate the remainder to subordinates more evenly after adjusting for the underlying heterogeneity in their productivity. We also find evidence that high-expertise managers whose bonus decisions reflect their support for cooperation have higher department performance than all other managers.
Keywords: discretionary bonus decisions; manager expertise; health care
JEL Classification: D22; M52; I19
Suggested Citation: Suggested Citation