The Effects of Managerial Discretion in Multi-Task Environments: Experimental Evidence

This study investigates effects of managerial discretion when employees have to efficiently allocate their effort towards multiple task outputs. Prior evidence suggests that managerial discretion affects performance less positively or even negatively in these cases. We identify and analyze three potential drivers of these effects. First, for fairness reasons, employees may not prefer bonus allocations based on efficient effort only. Second, managers could deliberately deviate from rewarding efficient effort because of their biased assessment of employees’ preferences. Third, employees may be concerned about how bonuses will be allocated which consumes cognitive resources and distorts effort provision. We find evidence in favor of the second and third driver but not the first. Our results contribute by enhancing our understanding of the effects of managerial discretion when employees have to efficiently allocate their effort towards multiple tasks outputs and by building knowledge about the best possible use of algorithm-based management control systems