Abstract
This paper adds to the scant literature on the internal structure of organizations by focusing on the organizational design of nongovernmental development organizations (NGDOs). Specifically, we evaluate prominent Spanish NGDOs during 2010 to determine the balance of two key organizational design choices at the NGDO’s project department: delegation of authority to lower-level employees and the provision of incentive compensation to ensure that these employees do not misuse their discretion. We develop a simultaneous model of these two choices that treats delegation and incentive compensation as endogenous variables. The results of our empirical analysis provide evidence that delegation of decision rights and incentive compensation systems are interdependent allowing scholars and practitioners a better understanding of the determinants of organizational design choices.
Highlights
The growing role of nongovernmental development organizations (NGDOs) in development activities throughout the world has involved an increase in the number of employees and the amount of financial resources they handle as well as the complexity of the performed tasks
Contrary to our expectation, when delegation increases, we find that incentive compensation is used less to align individual objectives with organizational objectives (H1)
This result can be explained by the unique place of intrinsic incentives within nonprofit organizations; namely, the increase of the responsibilities involved with delegation can become a powerful enough motivation to match individual and organizational aims [21], [22]
Summary
The growing role of nongovernmental development organizations (NGDOs) in development activities throughout the world has involved an increase in the number of employees and the amount of financial resources they handle as well as the complexity of the performed tasks. Because managers of NGDOs cannot make every decision necessary for the organization to run effectively, they are faced with two critical organizational design decisions: How much authority should they delegate to their employees to make better use of their knowledge, and how should they design their incentive compensation package so that the employees undertake the desired actions yet avoid misusing their discretion [1], [2]? Theoretical research argues that delegation of authority and incentive compensation are complementary organizational design choices made by management (i.e., they are endogenous) [5], [6]. We provide evidence that delegation of decision rights and incentive compensation are interdependent organizational design choices, addressing this research gap in the nonprofit sector. To the best of our knowledge, this paper is the first study to analyze the joint nature of the delegation of decision rights and incentive compensation of nonprofit organizations within the framework of agency theory
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