Managerial Discretion vs. Worker Democracy: Impacts on Employee Recognition and Productivity

A new National Bureau of Economic Research working paper by Namrata Kala and Madeline McKelway examines the effects of different employee recognition systems on workplace outcomes. Through a firm-level randomized controlled trial conducted in India, the study compares three methods for allocating bonuses: worker votes (workplace democracy), managerial discretion, and random allocation. The findings reveal distinct trade-offs between the approaches. While workplace democracy significantly increases worker attendance, managerial discretion leads to higher productivity. However, the manager-led approach reduces work-related discussions among employees, potentially hindering knowledge spillovers. In contrast, the democratic process encourages social interactions but introduces informal contracts, where winners are more likely to share rewards with co-workers in exchange for votes. Winners under managerial discretion are selected based on attendance and productivity metrics. These results highlight how incentive structures shape worker behavior, firm culture, and informal social dynamics within organizations, offering valuable insights for personnel economics and organizational management strategies.