Managerial labour markets in transitional economies: evidence from Bulgaria.

Introduction

The crucial importance of diverse issues concerning the managerial function in Soviet-type economies (STEs) has long been recognized. Researchers have investigated diverse topics, including appropriate reward systems for managers (Berliner, 1957; Granick, 1954) with special emphasis on the role of incentive systems for managers (Bonin, 1976; Weitzman, 1976). Equally, the vital contribution of the managerial labour market to the success of overall reform during transition has been widely noted (Aghion et al., 1994; Roland and Sekkat, 1992). Unfortunately, to date, factual knowledge of the managerial labour market both during planning and during early transition has often been scant - for example, note the need to derive information on managers from Russian emigres during communism (Linz, 1988). The need to improve our limited understanding of what is actually happening in the managerial labour market during early transitional stages in the economies of the former USSR and eastern and Central Europe is also clearly evident in the literature (e.g. Pinto et al., 1993). It is against this background that the aims of this article can be understood. By drawing on the findings of new survey data, we respond to the weaknesses of the available data and assemble some of the first stylized facts on the nature of the managerial labour market for an economy during the final days of communism and the early stages of transition.

We continue in the next section by reviewing briefly some of the key issues that have appeared in the literature concerning management in communist countries and economies in transition. Then we describe the data - the survey of Bulgarian executives (SBE). In the subsequent three sections, we present stylized facts from the survey on the three main aspects of the managerial labour market:

(1) the development (or underdevelopment) of internal labour markets for managers;

(2) the prevalence of incentive pay schemes;

(3) the pay of top management relative to that of other employees of the same firm.

Our key findings are that:

* the internal labour market for managers is quite underdeveloped;

* there is a low and declining use of incentive pay schemes (as compared to traditional fixed-wage forms of compensation);

* internal wage structures are relatively flat.

In the concluding section, we consider the policy implications of our findings. In particular, we note that all our findings point to a potentially serious inefficiency, and thus a serious public policy concern, and a need for a strategy to promote internal labour markets for managers, the use of incentive pay systems and efficiency wages.

Management during communism and early transition: conceptual framework

The managerial labour market in an STE, according to conventional wisdom, was believed to have had a number of features. Top managers of firms were posited to have limited autonomy or scope for discretionary power (Linz, 1988). Reflecting the dominance of state-owned firms, government acted as a monopsonist in the managerial labour market, with managers appointed by the communist party (or its agents, such as the ministries). Frequently, managers had little experience in that sector. Managerial reward systems under communism were distinguished by several attributes. Pay was mainly a base wage, with limited variation with regard to success indicators, such as plan fulfillment. Consistent with egalitarian values, it is also thought that the pay of top managers was a low multiple of the average wage. Indeed, not only was the CEO's pay affected by the phenomenon of wage levelling, but in many industries in the past CEOs were not even among the highest paid. Also, since relatively few very large firms existed in STEs, if recruitment of top executives from other firms was discouraged, one might expect to find a substantial degree of internal promotion in STEs (on giantism in Bulgaria, see Jones and Parvulov, 1995).

Theorists have pointed out how these arrangements would be …