Working Paper: NBER ID: w9633
Authors: Raghuram Rajan; Julie Wulf
Abstract: Using a detailed database of managerial job descriptions, reporting relationships, and compensation structures in over 300 large U.S. firms, we find that firm hierarchies are becoming flatter. The number of positions reporting directly to the CEO has gone up significantly over time while the number of levels between the lowest managers with profit center responsibility (division heads) and the CEO has decreased. More of these managers now report directly to the CEO and more are being appointed officers of the firm, reflecting a delegation of authority. Moreover, division managers who move closer to the CEO receive higher pay and greater long term incentives, suggesting that all this is not simply a change in organizational charts with no real consequences. We discuss several possible explanations that may account for some of these changes.
Keywords: Corporate Hierarchies; Managerial Compensation; Organizational Structure
JEL Codes: D21; D23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| number of positions reporting to the CEO (M12) | flattening of corporate hierarchies (L22) |
| organizational restructuring (L22) | decrease in levels between lowest managers and CEO (M12) |
| proximity to the CEO (M12) | higher pay for division managers (M52) |
| increase in CEO span of control (M12) | increase in number of managers reporting to the CEO (M12) |
| delegation of authority (M54) | increased authority granted to division managers (M54) |