No. 219: Management Controls in Hierarchies

Abstract

We study management controls (MCs) in a multi-level hierarchy, where senior managers use MCs to motivate middle managers, who in turn use MCs to motivate rank-and-file employees. We draw on existing control typologies (Merchant and Van der Stede 2017) to develop and validate new measures of the degree to which controls are standardized versus customized. In a field setting, we find that middle managers with larger spans of control prioritize standardized over customized controls. However, employee task diversity weakens the effectiveness of standardized controls and moderates the relation between span of control and control choices. Turning to outcomes of these control choices, we document negative associations between the use of standardized controls and both employee satisfaction and promotion frequency. These findings highlight a tension: standardized controls reduce costs for middle managers but impose costs on subordinate employees. Together, our evidence sheds light on the role of a middle manager’s span of control in MCs implementation and reveals trade-offs associated with increased reliance on standardized controls.