Autonomy and Monitoring

• Published date: 01 December 2016
• DOI: http://doi.org/10.1111/jems.12164
• Author: Eduardo C. Rodes,Marco a. Barrenechea‐méndez,Pedro Ortín‐Ángel
• Date: 01 December 2016

Autonomy and Monitoring

MARCO A.BARRENECHEA-M´

ENDEZ

Fac. CC. Econ`

omiques i Empresarials, Edifici B Universitat Aut`

onoma de Barcelona

Universitat Aut`

onoma de Barcelona

08193 Bellaterra (Cerdanyola del Vall`

es), Barcelona, Spain

Marco.barrenechea@upf.edu

PEDRO ORT´

IN-´

ANGEL

Fac. CC. Econ`

omiques i Empresarials, Edifici B Universitat Aut`

onoma de Barcelona

Universitat Aut`

onoma de Barcelona

08193 Bellaterra (Cerdanyola del Vall`

es), Barcelona, Spain

Pere.ortin@uab.es

EDUARDO C. RODES

Fac. CC. Econ`

omiques i Empresarials, Edifici B Universitat Aut`

onoma de Barcelona

Universitat Aut`

onoma de Barcelona

08193 Bellaterra (Cerdanyola del Vall`

es), Barcelona, Spain

Eduardo.rodes@uab.es

This paper provides a theoretical and empirical analysis of an under-explored consequence of

granting autonomy to workers: monitoring. In the principal-agent model that we develop, grant-

ing autonomy allows workers to carry out innovative tasks in the workplace. Given that innovative

tasks are more difficult to monitor, the model predicts a positive relationship between autonomy

and monitoring. Relying on information about blue-collar workers coming from a dataset of

Spanish industrial plants, we provide strong support for this prediction.

1. Introduction

Aghion and Tirole (1997) set out the theoretical foundations of a growing body of eco-

nomic literature on authority in organizations. A worker’s real authority, or autonomy, is

understood as being the capability of the worker to decide on the task to be performed.

The bulk of this literature (see Bolton and Dewatripont, 2012 for a summary) focuses on

the effects of autonomy on workers’ efforts to collect information in order to be able to se-

lect the task to be performed. The present paper contributes to this literature by stressing

another effect of granting autonomy: its consequences on the effort that workers exert on

the execution of the task that is finally implemented. More specifically,we are interested

in the relationship between autonomy and two mechanisms of the job design needed to

elicit this productive effort: monitoring and compensation. When we talk of monitoring,

we refer to efforts made by the firm (e.g., supervisors’ performance appraisal) to gather

information about the way workers carry out productive tasks (inputs and/or outputs).1

The authors acknowledge financial support from the Spanish Ministry of Economy and Competitiveness, ECO

2013-48496-C4-4-R. We are grateful for the helpful comments provided by two anonymous referees and by

Matthew Ellman, TorEriksson, Vicente Salas-Fum ´

as and participants at various conferences and workshops

1. It has been argued that autonomy and monitoring are antonymous terms (Neal, 1993) related to the

workers’ degree of empowerment to make a certain decision. Note that we use the term autonomy to refer to

C2016 Wiley Periodicals, Inc.

Journal of Economics & Management Strategy, Volume25, Number 4, Winter 2016, 911–935

912 Journal of Economics & Management Strategy

Several case studies, such as those by Nordstrom or Whole Foods Market or the

bulk of those presented by Kaplan and Norton (2001), show a clear interaction between

autonomy, monitoring and compensation. Nordstrom is a very successful firm in the

apparel industry that gives sales clerks a lot of discretion in the way they carry out their

work. Sarcastically, they call “the employee handbook” to a single five-by-eight-inch

card, where the only rule states: “...use your good judgment in all situations. There

will be no additional rules” (Collins and Porras, 1994, p. 117). This sound philosophy

is reinforced by the point of view expressed by the CEO Jim Nordstrom: “You can do

anything you need to at Nordstrom, just so long as you live up to our basic values or

standards” (Collins and Porras, 1994, p. 138). At the same time, they use sales per hour

for monitoring purposes, calling it2“the heart of Nordstrom’s distinctive management

strategy.” This information influences pay, the availability of better hours and days and

career opportunities.

In the supermarket chain Whole Foods Market, “Small, empowered work groups

are responsible for all key operating decisions, including pricing, ordering, staffing, and

in-store promotion. Although associates are highly empowered, they are also highly

accountable. Every four weeks, Whole Foods Market calculates the profit per labor hour

for every team in every store. Teams that exceed a certain threshold get a bonus in their

next paycheck . . . ” (Hamel and Breen, 2009, p.5)

Thus, it is not surprising that the managerial and accounting literature suggests

that the innovations resulting from workers’ empowerment will imply changes in the

monitoring and compensation systems. The following statement underscores this idea.

“(Employees) may innovate and find new and unexpected ways to achieve high-level

strategic objectives or identify variations in the strategy that open up new growth opportuni-

ties” (p.315). “Companies have been attempting to implement change for decades. Why do we

advocate that change initiatives now be accompanied by a change in the measurement system to

the Balanced Scorecard? Adapting the organization’s measurement system to the change agenda

is critical for success” (p.343). “The final linkage from high-level strategy to day-to-day ac-

tions occurs when companies link individuals’ incentive and reward programs to the Balanced

Scorecard” (Kaplan and Norton, 2001, p. 253).

This anecdotal literature does not address the questions of why and how such

decisions are interrelated. The way in which these variables of the job design interact

is not straightforward. It might be plausible to consider different combinations. For

example, are monitoring and compensation going to be higher (or lower) in contexts

in which workers are empowered? Are firms going to provide less autonomy when

monitoring costs and compensation levels are higher (lower)?

This paper sets up a principal-agent model that provides insights into these ques-

tions. The firm (principal) decides whether to grant workers (agents) rights that allow

them to make decisions on selecting the task needed to perform their job, and establish

the monitoring and compensation levels that are contingent on this decision. The worker

decides whether or not to implement a new task when this is possible, and the effort

exerted in performing such a task.

The main contribution of the model is to emphasize the effects of autonomy on

the monitoring and compensation levels. Our explanation is based on the assumption

the degree of empowerment for the selection of the task to be performed, whereas we use the term monitoring to

refer to the degree of empowerment for the execution of the task.

2. See p. 7 of the case study: Nordstrom:Dissension inthe Ranks (A), Harvard Business School (9-191-002),

1999.