Power and the economics of organizations

I discuss the main theories on the role of power in organizations, emphasizing two questions: how should power be divided among employees? and: what mechanisms should the organization choose to ensure that those with power use it efficiently

Power in the firm and managerial career concerns.

More powerful managers make more important decisions. Therefore, firm performance is more informative about the abilities of such managers, who, realizing that they are more visible, are more eager to improve performance. If this reputation effect exists, how should firms allocate power? I analyze the optimal allocation of power and derive implications for several issues that often arise in management practice: the choice of departmentation criteria, the importance given to seniority, and the width of job definitions. Finally, I show that the model is consistent with the empirical evidence on managerial succession.

Job rotation as a learning mechanism.

This article analyzes the costs and benefits of job rotation as a mechanism with which the firm can learn about the employees' productivities and the profitability of different jobs or activities. I compare job rotation to an assignment policy where employees specialize in one job along their career. The gains from adopting a job rotation policy are larger when there is more prior uncertainty about employees and activities. I argue that this firm learning theory fits the existing evidence on rotation better than alternative explanations based on employee motivation and employee learning.

Why do employers give discretion? Family versus performance concerns.

Using a large data set of Western European employees, I examine two sets of reasons behind employers' decisions to give discretion: performance concerns (firms give discretion in order to improve performance) and family concerns (firms wish to improve the employees' work–family balance). I find more support for the former than for the latter. Discretion is positively related to the use of "high-performance" work practices and to employee position and ability, and is smaller in larger establishments, which suggests that loss of control matters to employers. Evidence about family concerns is less compelling. Female participation in the labor force has a positive effect on discretion over work schedules, but women have less discretion than men, and employees with small children do not have more discretion than other employees. Large and governmental organizations, which are expected to care more about work–family balance, do not offer more discretion over work schedules than other types of organizations.

Performance Pay and the "Time Squeeze"

Earlier studies of the impact of performance pay on individuals’ behavior have primarily been concerned with the effects on their earnings and productivity. The productivity increases associated with the adoption of performance pay practices may, however, come at the expense of quality of life at or outside work. In this paper we study the effect on the employees’ out-of-work activities, testing whether performance pay contracts lead to a “time squeeze” for non-work activities. In doing so, we distinguish between two effects, a substitution effect and a discretion effect. On the one hand, since the marginal payoff to work is higher under a performance pay contract, employees will work more and spend less time on private activities (substitution effect). On the other hand, to the extent that employees have some choice over their work hours, if employees are more productive they can do the same job in less time and have more spare time for private activities (discretion effect). We distinguish between those services that the employee can buy in the market (e.g., cleaning, cooking) and leisure activities (e.g., sports, cultural activities).Performance pay; Out-of-work activities; Time allocation; Work-family balance

The adoption of job rotation: testing the theories.

This paper tests three possible explanations for why firms adopt job rotation: employee learning (rotation makes employees more versatile), employer learning (through rotation, employers learn more about individual workers' strengths), and employee motivation (rotation mitigates boredom). Whereas previous studies have examined either establishment characteristics or a single firm's personnel records, this study merges information from a detailed survey of Danish private sector firms with linked employer-employee panel data, allowing firm characteristics, work force characteristics, and firms' human resource management practices to be included as explanatory variables. The results reject the employee motivation hypothesis, but support the employee learning and, especially, the employer learning hypotheses. Firms allocating more resources to training were more likely to rotate workers; rotation schemes were more common in less hierarchical firms and in firms with shorter average employee tenure; and both firm growth rates and firms' use of nation-wide recruitment were positively associated with rotation schemes.Job rotation;

The Adoption of Job Rotation: Testing the Theories

The aim of this paper is to test three theories for why firms introduce job rotation schemes: employee learning, employer learning, and employee motivation. The earlier literature has made use of either information about establishment characteristics or data coming from personnel records of a single firm. In order to improve upon this, we make use of a unique data set constructed by merging information from a fairly detailed survey directed at Danish private sector firms with a linked employer-employee panel data. This allows us to include firm and workforce characteristics as well as firms HRM practices as explanatory variables, and hence to carry out a more comprehensive analysis.Job rotation; employee learning; employer learning; employee motivation

Power in the firm and managerial career concerns

More powerful managers make more important decisions. Therefore, firm performance is more informative about the abilities of such managers, who, realizing that they are more visible, are more eager to improve performance. If this reputation effect exists, how should firms allocate power? I analyze the optimal allocation of power and derive implications for several issues that often arise in management practice: the choice of departmentation criteria, the importance given to seniority, and the width of job definitions. Finally, I show that the model is consistent with the empirical evidence on managerial succession.Publicad

Power in the firm and managerial career concerns

With more power, a manager can make more decisions or more important ones, and in this way have more impact on his firm. As a consequence, firm performance provides more information about the abilities of more powerful managers, who are more "visible". In this paper I analyze how the allocation of power in the firm affects the managers' career concerns when no manager's power can be increased without reducing another manager's. I show that, with a simple linear technology and risk-neutral managers, it is generally optimal to divide power in an unequal way, even though this may create conflicts of interest between managers. I also analyze how optimal pay-forperformance schemes should depend on the allocation of power

EMPLOYEE PARTICIPATION IN EUROPE

The goal of this study was to identify the determinants of employee participation in organizations across Europe. Power distance, uncertainty avoidance, competition, unionisation, sector, organizational size and business strategy were all expected to influence amount of employee involvement. The hypothesised relationships were contrasted using data from the EPOC survey, a representative survey of over 5,700 organisations located in 10 European Union countries. The results supported all but two of the expected relationships. Power distance and organisational size did not predict amount of participation. A closer look at the relationship between organizational size and employee involvement revealed a significant relationship when type of participation, consultative or delegative, was included in the analysis.