Power to the Personnel? The Impacts of Managerial Discretion vs. Worker Democracy in Employee Recognition

Worker agency—workers' influence over organizational decisions—is a commonly-cited determinant of employee engagement, productivity, and organizational culture. We conducted a firm-level RCT in India, randomizing whether employee recognition and associated bonuses were allocated: based on a worker vote (agency treatment), at the discretion of the manager (managerial discretion treatment), or at random and unrelated to performance (control). We find that workplace democracy increases worker attendance, but managerial discretion improves productivity. There are also implications for firm culture and knowledge spillovers, with the manager arm reducing work-related discussions between workers. Winners in the manager arm are positively selected on attendance and productivity, while those in the democracy arm are positively selected on attendance, social interactions, and likelihood of sharing the reward with co-workers in exchange for votes. These results highlight how what is valued in the workplace impacts worker behavior and firm culture, as well as the potential for informal contracts among workers to interact with workplace incentives.