Scientific Study Shows Middle Managers Ignore a Company’s Productivity Objectives to Focus on Personal Retention Goals

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A new paper published by Achyuta Adhvaryu, Emir Murathanoglu, and Anant Nyshadham sheds light on the issue of clashing incentives within organizations. The study focused on middle managers at Shahi Exports, one of India’s largest garment-makers. Here are the key takeaways from the article:

Uneven Distribution of Training Benefits

• On average, the soft-skills training provided to supervisors yielded positive results in terms of productivity gains when compared to control groups.

• However, the benefits of the training were not evenly distributed among teams.

• Teams whose supervisors were highly recommended by middle managers for training did not experience any productivity gains.

• Instead, the productivity gains were concentrated among supervisors who were less recommended.

• Surprisingly, the pattern for retention was the reverse: supervisors highly recommended by their managers witnessed a significant drop in quit rates, while less recommended supervisors saw little change in quit rates.

Deliberate Calculation and Flight Risk Considerations

• The authors suggest that this peculiar pattern reflects a deliberate calculation made by middle managers.

• Managers were nominating supervisors they perceived as flight risks for training, which did not align with the interests of senior leaders.

• However, this strategy suited middle managers who needed to handle the burden of filling in for absent supervisors and training new ones.

• For middle managers, retaining workers and reducing churn was more important than productivity gains.

Lessons Learned: Incentives, Agency Problems, and the Role of Middle Managers

• The article provides three important lessons regarding incentives and middle managers.

• The first lesson highlights that agency problems can arise wherever power is delegated within a decentralized organization.

• While decentralization has its benefits, it introduces competing interests among different levels of management.

• Another study mentioned in the article demonstrates that managers in a large manufacturing company in Germany tried to retain the best workers for their own teams.

• The second lesson emphasizes the importance of respecting middle managers instead of ridiculing them.

• Middle managers possess valuable private information about employees, such as who is likely to leave the company and who is worth keeping.

• Corner office executives and board members often lack this granular insight due to their distance from day-to-day operations.

• The third lesson from Shahi Exports is that money is not always the root cause of organizational challenges.

• In this case, middle managers recommended training to avoid the additional workload resulting from higher employee churn.

Overall, the study underscores the significance of understanding clashing incentives, agency problems, and the crucial role middle managers play in influencing workforce performance. By aligning incentives appropriately, organizations can harness the potential of their middle managers and improve overall productivity and retention rates.

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