Susanna Gallani

Assistant Professor of Business Administration

Susanna Gallani is an assistant professor of business administration in the Accounting and Management unit. She teaches the Financial Reporting and Control course in the MBA required curriculum, and in focused executive education programs.

In her research, Professor Gallani focuses on issues related to the design and effectiveness of incentives. In recent work she has studied the role of professional networks as sources of learning and normative pressure in the context of CEO compensation design in public firms based in the United States. Currently she is exploring the drivers and effectiveness of performance measurement systems linked to compensation contracts.

Professor Gallani holds a Ph.D. in accounting from Michigan State University, and a Master in Business Administration from Central Michigan University. Her undergraduate degree in Business Economics is from the University of Trieste, Italy. Before pursuing her doctorate, Professor Gallani was a senior manager at Honeywell, where she was involved in business transformation initiatives.  

Working Papers

  1. Through the Grapevine: Network Effects on the Design of Executive Compensation Contracts

    Susanna Gallani

    Effective design of executive compensation contracts involves choosing and weighting performance measures, as well as defining the mix between fixed and incentive-based pay components, with a view to fostering talent retention and goal congruence. Despite large variability in firms' characteristics and goals, compensation design is subject to isomorphic pressures, which cannot be completely explained by industry affiliation or peer group membership. Inter-firm professional network connections, such as board interlocks and compensation consultants, provide means and opportunities to observe and imitate organizational behavior across firms. Using information disclosed in proxy statements of publicly traded companies, I predict and find that firms connected through board interlocks or common compensation consultants display a higher degree of isomorphism in the design of executive compensation contracts. However, consultants with larger customer base and greater expertise mitigate these isomorphic tendencies. Additionally, interlocks and compensation consultants exert different influences on different aspects of the compensation design.

    Keywords: compensation design; board interlocks; Compensation Consultants; network centrality; homophily; Quadratic Assignment Procedure; Executive Compensation;


    Gallani, Susanna. "Through the Grapevine: Network Effects on the Design of Executive Compensation Contracts." Harvard Business School Working Paper, No. 16-019, August 2015. View Details
  2. Is Mandatory Nonfinancial Performance Measurement Beneficial?

    Susanna Gallani, Takehisa Kajiwara and Ranjani Krishnan

    We use value of information theory and examine the effect of regulation requiring mandatory measurement and peer disclosure of nonfinancial performance information in the hospital industry. We posit that mandatory nonfinancial performance measurement has an information effect and a referent performance effect. The information (referent performance) effect arises because the new performance signals induce more precise posterior beliefs about individual (relative) performance. Using panel data from the Japanese National Hospital Organization, we analyze performance improvements following regulation requiring standardized measurement and peer disclosure of absolute and relative patient satisfaction performance. After controlling for ceiling effects, bounded dependent variables, and regression to the mean, results show that mandatory nonfinancial performance information measurement and peer disclosure improves overall performance (information effect) with larger improvements for poorly performing hospitals (referent performance effect). These effects are found even in the absence of any compensation-based incentives to improve performance.

    Keywords: value of information; patient satisfaction; mandatory performance measurement; health care; Information; Health Care and Treatment; Performance Evaluation; Health Industry;


    Gallani, Susanna, Takehisa Kajiwara, and Ranjani Krishnan. "Is Mandatory Nonfinancial Performance Measurement Beneficial?" Harvard Business School Working Paper, No. 16-018, August 2015. View Details
  3. Budgeting, Psychological Contracts, and Budgetary Slack

    Susanna Gallani, Ranjani Krishnan, Eric J. Marinich and Michael D. Shields

    We study three types of budgeting (authoritative, consultative, and participative) that differ in the influence that managers have on their approved budgets and the opportunities they provide for managers to build budgetary slack into their budget requests. We provide evidence that when organizations implicitly communicate that budgeting will be participative, it establishes psychological contracts in managers. If managers subsequently experience budgeting that is inconsistent with their psychological contracts, then their psychological contracts are breached. This leads to feelings of violation and distrust, even when the terms of the managers' economic contracts are fulfilled. We examine if managers whose psychological contracts are breached seek redress by building additional budgetary slack into their budget requests. Experimental results indicate that authoritative and consultative budgeting result in psychological contract breach to a greater extent than participative budgeting. To seek redress, managers build in more budgetary slack when budgeting is authoritative or consultative than when it is participative. Furthermore, the effects of the extent of psychological contract breach on built-in budgetary slack persist in the future when budgeting is participative.

    Keywords: Business or Company Management; Trust; Budgets and Budgeting;


    Gallani, Susanna, Ranjani Krishnan, Eric J. Marinich, and Michael D. Shields. "Budgeting, Psychological Contracts, and Budgetary Slack." Harvard Business School Working Paper, No. 16-017, August 2015. View Details
  4. Applications of Fractional Response Model to the Study of Bounded Dependent Variables in Accounting Research

    Susanna Gallani, Ranjani Krishnan and Jeffrey M. Wooldridge

    Bounded dependent variables are frequently encountered in settings of interest for accounting researchers. The econometric modeling of these variables presents particular challenges. Linear estimation methods (e.g. OLS) are often inadequate in the study of bounded dependent variables and may produce predicted values that lie outside the unit interval. Established nonlinear approaches such as logit and probit transformations, or censored and truncated regressions may attenuate the shortcomings of linear regressions. However these approaches are not suitable in settings where a material portion of the observations is at the boundaries. Nonlinear methods use restrictive distributional assumptions and employ ad-hoc transformations for observations at the boundaries. The fractional response model (FRM) (Papke and Wooldridge 1996, 2008) overcomes many limitations of established linear and non-linear econometric solutions in the study of bounded data. In this study, we review the econometric characteristics of the FRM and propose its applicability to a wide range of phenomena of interest for accounting scholars. We provide examples of accounting research that routinely uses bounded dependent variables, present results from Monte Carlo simulations to highlight the advantages of using the FRM relative to conventional models, and conduct an archival extension that compares the results from a traditional OLS model and the FRM to the study of managerial compensation. We conclude that the FRM provides an improved methodological approach to the study of bounded dependent variables.

    Keywords: Fractional response model; bounded variables; simulation; compensation mix; Mathematical Methods; Accounting;


    Gallani, Susanna, Ranjani Krishnan, and Jeffrey M. Wooldridge. "Applications of Fractional Response Model to the Study of Bounded Dependent Variables in Accounting Research." Harvard Business School Working Paper, No. 16-016, August 2015. View Details

Cases and Teaching Materials

  1. VMD Medical Imaging Center

    Susanna Gallani and Eva Labro

    VMD Medical Imaging Center, a local independent provider of medical imaging services, is facing some important challenges. Despite efficiency improvements and cost cutting initiatives carried out over the past few years, their profitability is shrinking, their prices are becoming uncompetitive, and their main customer, a large regional research and teaching hospital, is threatening to seek alternative, more cost-effective, suppliers. The case addresses a number of important challenges that firms typically face with respect to designing and maintaining their costing systems, including the need to keep the costing system in line with the business processes of the firm throughout its life cycle, the setting of transfer prices, which highlights the interdependencies between costing systems and pricing strategies, and the demand-induced death spiral, which is brought about by a shift in sales mix from labor intensive to technology intensive imaging services. In addition, this case offers an opportunity to develop the class discussion in multiple directions, at the discretion of the instructor, such as the role of costing systems in organizations, the relationship between costing and strategy, and the facilitating role of costing with respect to cross-functional coordination.

    Keywords: Costing; Death Spiral; Transfer Pricing; Activity Based Costing and Management; Competitive Strategy; Medical Specialties; Health Industry;


    Gallani, Susanna, and Eva Labro. "VMD Medical Imaging Center." Harvard Business School Case 117-002, August 2016. View Details
  2. RegionFly: Cutting Costs in the Airline Industry

    Susanna Gallani and Eva Labro

    RegionFly is a small, private airline specializing in ultra-premium services. Founded shortly after the "Golden Age of airline travel," RegionFly's financial performance had been strong for several decades. More recently, however, the results have taken a downward trend, due in part to the impact of the Great Recession on the entire airline industry. Not only were premium service providers affected more significantly, but the recent wave of mergers and acquisitions involving large airlines also leveraged new economies of scale, thereby reducing costs and increasing the competitive pressure on air travel prices. As a result of the deterioration in their financial performance, RegionFly was recently acquired by a larger provider, and several top managers were replaced. The new management team, supported by an external consulting firm, introduced a series of aggressive cost-cutting measures that resulted in a downsizing of the workforce, and impacted some distinctive features of the services provided by RegionFly that had been historically associated with the success of the company. Additionally, top management introduced a new product profitability criterion to be used in support of strategic decisions related to the composition of the product mix offering. The application of the new criterion led to the elimination of two of the seven routes included in RegionFly's portfolio. To the surprise of top management, however, the cost-cutting and product-cutting measures did not result in an improvement in the profitability of the company, which, in fact, deteriorated even further. As the profitability of another route falls under the threshold, management is faced with an important decision: should the product profitability criterion be enforced, thus eliminating yet another route from the portfolio? “RegionFly: Cutting Costs in the Airline Industry” provides an introduction to costs allocations, to the evaluation of product profitability, and to the impact of the methodology used to allocate fixed costs on strategic decisions, such as eliminating product lines or firm segments.

    Keywords: Cost Management; Profit; Air Transportation Industry;


    Gallani, Susanna, and Eva Labro. "RegionFly: Cutting Costs in the Airline Industry." Harvard Business School Case 116-047, May 2016. View Details