Over the last four decades, the responsibility accounting literature has examined the determinants and consequences of a variety of issues concerning incentives and performance evaluation in hierarchical organizations. This book examines the factors that drive assignment of authority inside the corporate hierarchy. In particular, the authors focus on authority assigned to middle managers or business-unit managers, rather than CEOs or senior executives, because decisions and actions taken at middle levels are collectively far-reaching and because little of the literature has focused on middle managers.

In addition, compensation setting at lower levels of the corporate hierarchy usually differs from the process for setting compensation for the CEO and other senior executives. While business unit compensation is usually determined by corporate management, CEO and senior executive compensation is typically determined by the board. The authors also deemphasize issues pertaining to workers in lower ranks, except to the extent those worker-related characteristics affect middle managers.

After a short introduction, Section 2 reviews the related theoretical and empirical literature. Section 3 studies the managerial span of control when managers’ activities are to provide direction and support, monitor performance, and contract with subordinates. Section 4 illustrates the relation between performance measurement and managerial span of control. Section 5 studies the assignment of authority to support subordinates of different types. Section 6 summarizes empirical implications and discusses avenues for future research.