How does management matter?

What is it about?

Does management matter, and if so, how? This study uses data on "middle" managers, that is managers of approximately 250 stores of a major UK retailer to answer these questions. We find that the most important management quality is “commercial awareness”. At the same time, we find that many stores have poor managers on this indicator, though the company at least appears to place better managers in larger stores. It also incentivizes managers, operating a scheme giving shares (approximately 20%) in both positive and negative deviations of actual sales from expected. However, we find little evidence that better managers receive higher pay, ceteris paribus, implying that middle manager skills are company specific.

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Why is it important?

Not much is known about how "management matters". We find that management ability (as measured by the company in terms of "commercial awareness") varies widely among stores. We also find that the better managers are allocated to the larger stores, which is important. In addition, the company operates a payment scheme which gives managers shares in deviations of actual sales from expected, which of course acts an incentive scheme. A final important finding is that that better (middle) managers do not need to be paid more, which shows that special skills are required to manage the stores, and these skills do not appear transferable. Middle management skills, at least within retailing, appear specific, not general.

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