Shielding the Workforce: Does Subordinate Contract Frame Induce Leniency in Superiors’ Target-Setting Decisions?

Abstract

Management control systems affect employees at every level of the organizational hierarchy, so it is crucial to evaluate how controls at one hierarchical level spillover to another level. We examine how subordinates’ contract frame, an important management control, affects superiors’ target-setting decisions, another important control. Using an experiment, we predict and find that superiors set lower targets for subordinates under a penalty contract compared to a bonus contract, as superiors can project their negative perceptions of penalties onto subordinates and seek to reduce these perceived negative effects. Further, we predict and find that increasing the salience of subordinates’ contract choice to the superior mitigates the effect of subordinate contract frame on target-setting, and that these effects are stronger in low Dark Triad superiors compared to high Dark Triad superiors. Our findings add insights into the interrelationships of management controls at different hierarchical levels within the organization.