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Managerial Task Assignment and Promotions

Joan E. Ricart I Costa

Abstract

A two period model of managerial task assignment is developed, where the current employer has the advantage of observing the actual performance of the manager, not observable by outside employers who can observe only the assignments. The manager is assumed to have all the bargaining power and there are many risk-neutral firms competing for his expertise. It is shown that the optimal contrasts are rigid but the market value of the managers is below actual productivity and that old managers are promoted less than is efficient. We introduce the idea of managers exploiting their information to separate themselves out in the market place. As a consequence, our model has the appealing property of small ability-based wage differentials within a task, as well as large ones between tasks.