Not only CEOs, the Importance of the Manager

ARNALDO CAMUFFO ANALYSES THE REASONS WHY THE HUMAN CAPITAL OF MIDDLE MANAGERS MAKES THE DIFFERENCE TO FIRM PERFORMANCE, BUT IS NOT ADEQUATELY COMPENSATED

The research on managerial ability to generate value is usually focused on CEOs. Despite their importance, little is known about middle managerial positions below the executive level. “Talking about middle managers, two questions arise”, says Arnaldo Camuffo, Professor of Business Organization at Bocconi and Director of the ICRIOS research center. “Do they matter? Is their productivity reflected in their pay?”

The answers are featured on a research on Italian store managers of an important catering company. It is based on monthly records for 417 store managers for the years 2007-2014. The data set contains information on contract characteristics, wages, bonuses, performance appraisals, promotions. Managers move across stores, thus allowing the researcher to isolate their contribution to firm performance. The paper states that managerial human capital matters, but differences in productivity are not necessarily related to differences in compensation. Good and bad managers can be under- and over-paid. It happens because organizations can not design compensation systems that recognize the value of human capital.

“The study is innovative for two reasons”, Camuffo says. “First: it is about middle managers, not CEOs. Second: this is the first analysis based on a detailed set of compensation data. The difficulty in isolating the contribution of human capital to company performance can generate organizational distortions and have negative spillovers on the labor market, misallocating managers across firms”.

Camuffo is about to apply the same approach to CEOs. “Literature has focused on how differences in performance reflect differences in CEOs’ productivity. Now it is time to analyze the causal chain that links top managers’ human capital, their contribution to firm performance and their compensation”.

Read the other stories on the topic of Human Capital:

We Are Who We Hire    
Gig Economy: What Rights for Workers?  
The Chosen People who Invested on Themselves
Investing Time in Children Pays
Uncertain Victor, Better Candidates
The Importance of Incentives
The Consequences of Uncertainty on Families
Autonomy in Decision Making: the Right Balance is Required
The Geography of Human Capital
Not all Directors have the Same Value



 

by Claudio Todesco