The adaptation of management control systems to different agents

Management control systems are commonly used by firms, but it is challenging to design an optimal control system because of the complexity of organizational contexts, and varieties of individuals with different preferences, beliefs and work relations within firms. In this dissertation, I examine how firms can adjust control decisions, such as target setting and monitoring intensity, to agents with different traits. I also study the outcome of implementing different controls, to describe how firms can benefit from this adaptation. In Chapter 2 we investigate how a principal can reduce the costs caused by explicit incentive contracts. We expect that the relation between principal and agents developed through repeated interactions can influence the target update process and help to mitigate the target ratchet effect. Using the data from a dealership, we empirically show that principals ratchet targets less for committed dealers in order to mute perverse effects of target ratcheting, and this motivates committed dealers to exert effort. Chapter 3 discusses the rationale of using same nonfinancial targets for each business unit (uniform targets) and investigates how to support the achievability of these targets, as uniform targets are not adjusted according to individual ability. We argue that firms may exploit the cause-and-effect relations between different performance measures to increase the achievability of nonfinancial targets (wage budget-employee satisfaction-customer satisfaction-revenue chain). We find that firms grant more wage budgets to managers who deliver substandard nonfinancial performance but outperform their peers, to facilitate their nonfinancial performance. Chapter 4 explores whether supervisors are able to know their agents and adapt monitoring intensity according to the tenure and confidence level of different agents. We predict and find that supervisors impose less monitoring to well-performed junior agents so that juniors can experiment and develop knowledge. We also find that monitoring increases for overconfident managers to control their risk-taking behavior. These results suggest that supervisors can indeed modify their level of direct supervision according to agent’s personal makeup and characteristics