Motivating management : evidence from construction project teams

Abstract

 The productivity of teams not only depends on the effort of individual members, but also extremely rely on team management, including overall planning and coordination among members. One can motivate a team by incentivizing the top manager, or he can motivate the whole team leader group. In theory, the two approaches have their own advantages. However, we know little about which way dominates in practice due to the scarcity of data on teams. How should incentives be distributed within the team to optimize team performance? This paper attempts to answer this question by exploring a team incentive policy implemented by a large construction company for construction project teams. Each project team is led by a project manager who manages all aspects of the project. Before the project starts, the project team is required to pay an amount of money called the risk deposit, which determines rewards and penalties of the team upon project completion. The deposit share undertaken by each member of the team determines their responsibility for the project, as well as the percentage of rewards and penalties they face afterward. Therefore, we put forward a practical question in this paper: how does the way risk deposit is allocated between the project manager and team members affect project performance? Based on detailed information on the company’s 321 construction projects from 2003 to 2015, this paper studies the effect of the project manager’s deposit share on team performance. We establish this causal effect with the difference-in-differences (DID) method by investigating a reform in the risk deposit system implemented by the company. In this policy reform, the share of the risk deposit for project managers in civil engineering projects (the treatment group) decreases due to a certain restriction, while specialized projects (the control group) are not subject to this restriction. Baseline results show that controlling for various types of project characteristics and fixed effects, the policy reform reduces extra profit rate by 7.8-8.4 percentage points, or 9.85-10.6 million yuan for civil engineering projects compared with specialized projects, a statistically and economically significant result. We further corroborate the robustness of the baseline results through the parallel trend test, replacement of performance measures, and controlling for manager ability. In terms of the mechanism, we find that the reform shifts the incentives that should have belonged to the project manager to the chief engineer and the business manager. The project manager, the chief engineer and the business manager are the “iron triangle” of a project team. The project team has a three-level management structure, with the project manager leading the chief engineer and the business manager, the chief engineer leading the technical and production departments, and the business manager leading the cost department. Our results suggest that the project manager’s role in planning and coordinating is more critical to project performance than the roles of the chief engineer and the business manager in supervising subordinates, and therefore the decrease in incentives for project managers leads to poorer team performance. To illustrate that the project manager plays an extremely important coordinating role in the project, we used a triple differences (DDD) method to analyze the differential impact of the reform on projects with different characteristics. The results show that projects that require more coordination from the project manager (meaning larger team size) are more negatively affected by the policy reform. In addition, this paper explores how risk deposit incentive interacts with career concern of managers. Project managers who perform well have a higher probability of being promoted to the headquarters. The prerequisite for a project manager to be promoted to the headquarters is that the project manager needs to have enough seniority, that is, enough years of experience. We find that managers subject to career concerns are less negatively affected by the policy change. Project performance is not affected by the policy only for project managers with more than 20 years of experience. This means the vast majority of project managers are negatively impacted by the policy. This paper has several contributions. First, this paper brings out the problem of motivating management, while most of the research on motivation in organizations has focused on how to incentivize the effort of employees and has ignored the important fact that management also requires to be motivated. Second, the research on project managers in this paper provides a deeper understanding of what managers do. The results emphasize the planning and coordinating role of managers, which is distinct from managers as supervisors in previous studies. Third, this paper provides an in-depth study of the risk deposit system, which can be seen as an innovative management practice. Such research has practical significance for our focused company, as well as other organizations who are going to adopt such practices.