Divide et Impera: Curbing Employees' Duties to Remain in Office

Abstract

By endogenizing a manger's optimal number of direct reports, we show how managers can exploit their organizational authority to shield themselves against replacement. Although the probability of hiring a star performer increases with the number of direct reports, each employee completes a smaller fraction of the overall task, such that learning about the employees' individual abilities occurs more slowly. We show that a manager maximizes the probability of retaining his job if he delegates a task to an infinite number of employees. Through the trade-off for the manager between decreasing his private costs of being replaced and increasing labor coordination costs, our model derives predictions of when managers tend to choose an excessively large number of direct reports, creating inefficiencies at the firm level.