Incentive Mechanism For Project Managers In Construction Enterprises:a Project Governance Perspective

The relationship between construction enterprises and project managers is the principal-agent one. It is the uncertainty of the external market environment, and the improper behavior of clients in particular, that increases the asymmetric information and the unreasonable allocation of responsibility and authority between the two sides of the principal-agent, as well as the room for project managers to violate the interests of enterprises, so that the phenomenon that projects are profit-making while enterprises are running at a loss occurred.Taking construction enterprises as background, and aimed to optimize the coupling relationship between the enterprise and the construction project, incentive mechanism for project managers have been researched from a perspective of project governance by using the principal-agent theory. The focus is put on the balanced allocation of responsibilities, rights and interests of project managers. There are six parts in the article. First of all, the poor profitability and the nominal profit center of construction enterprises are identified, and the dual pressures that construction enterprises suffered from the external market environment and the internal project managers are analyzed. Then, the research status of project governance and incentive theory at home and abroad is systematically summarized. Subsequently, the following works are mainly conducted:(1) The special status and role of project managers are firstly clarified compared with department managers of general enterprises from a project governance perspective. Then, the specific form and the reason of agency problems of project managers, and the incentive mechanism for project managers and its shortcomings are analyzed combing with an instance. It’s indicated that project managers have greater authority and work autonomy than department managers, which results in the improvement in the efficiency of project management as well as the increase in agency cost that enterprises should pay.(2) With the parameterized principal-agent model, and through highlighting the influential activities of clients, the incentive model for project managers in construction enterprises is multi-levelly reconstructed from symmetrical information to asymmetrical information and from one-dimensional mission to multi-dimensional mission. And ways to set the incentive intensity and to reduce agency cost are progressively explored. It’s shown that attitudes to risk and individual capacity of project managers, and influential effects of clients and the uncertainty of the external environment are key factors to determine the optimal incentive intensity and agency cost.(3) With conclusions of the model, optimized strategies and recommendations are proposed from aspects of both the external market environment and the internal incentive mechanism of construction enterprises. The former focuses on how to regulate the behavior of clients and alleviate the uncertainty of the construction market, and the latter focuses on how to avoid adverse selection before the establishment of the principal-agent relationship between construction enterprises and project managers and moral hazard after that. It’s aimed at improving the incentive effect for project managers comprehensively, so as to increase the profit level and the overall strength of construction enterprises and achieve Pareto optimum in the implementation of projects simultaneously.The research is further summarized at last, and main conclusions and outlook are proposed.There are two aspects of innovation in this paper:The first one is a new perspective of project governance is used to analyze the status of construction enterprises’ poor profitability. The second one is a new factor of influential activities of clients is considered in the principal-agent relationship between construction enterprises and project managers.