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Job design in the retail grocery business: an empirical analysis

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Both agency theory and job satisfaction research examine an employer's problem of designing employment contracts and work environment for employees. The applications of agency theory in the sales-force compensation literature focus on identifying compensation plans that mitigate the downstream moral hazard problem and align the conflicting interests of principal and agent. However, the role of non-monetary work factors is typically not considered. Job satisfaction research, on the other hand, focuses on the impact of non-monetary factors that can influence an employee's job satisfaction and productivity. Yet, this research does not address the problem of incentive alignment of self-interested employees. The findings are consistent with agency theory. First, a store manager's effort increases store performance but decreases a store manager's utility. This indicates the presence of a moral hazard problem for the retailer. Second, fixed compensation does not motivate a store manager to exert more effort. Thus, the district supervisor becomes an important vehicle through which store managers are motivated to exert effort. However, the results also provide evidence that store managers obtain utility from a number of work-related factors beyond monetary compensation. These factors include the autonomy to carry out the job independently, social climate at the work place and from job performance itself. Moreover, autonomy increases both effort and utility and thus can mitigate the moral hazard problem. On the other hand, a better social climate leads to higher utility but is associated with lower effort. Their results show that combining the two research streams can provide useful insight for job design. In this study the authors use an agency framework to examine the effect of various monetary and non-monetary job design and work environment factors on a firm's profit and an agent's overall satisfaction or utility. They wish to learn whether non-monetary factors can simultaneously stimulate good performance and provide happiness in the workplace. The job characteristics of grocery store managers in their data provide a good context for this study not only because the monetary compensation of the store manager only involves a fixed salary but also because there are many non-monetary and behavioural factors that are relevant to the job environment in question.

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