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. The variability in compensation design observed in practice is significantly lower than it would be predicted by contracting theory. This is likely due to indirect constraining pressures, which cannot be completely explained by industry affiliation or peer group membership. I posit that network connections involving corporate boards operate as a conduit for these pressures. Using information disclosed in proxy statements of publicly traded companies, and a vectorial approach to measure compensation similarity, I predict and find that firms that are connected by board interlocks, hiring the same compensation consulting firm, or sharing a blockholder, exhibit a higher degree of similarity in the design of executive compensation contracts than what would be predicted by similarities in organizational characteristics. The relative prominence of the connectors within the respective networks moderates the network effects on the degree of compensation similarity. Finally, I show that the market responds positively to compensation similarity, although it is associated with excess CEO compensation.

    Keywords: compensation design; board interlocks; Compensation Consultants; network centrality; homophily; Quadratic Assignment Procedure; Blockholders; 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. (Revised December, 2016.) 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 Misreporting

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

    We study three common types of budgeting that differ in employees’ influence over their approved budgets. These include affirmative budgeting where employees have full influence, consultative budgeting where employees have moderate influence, and authoritative budgeting where employees have low influence on their approved budgets. We argue that when organizations explicitly or implicitly communicate that budgeting will be participative, it establishes psychological contracts of affirmative budgeting in employees. Psychological contract breach occurs if employees subsequently experience authoritative or consultative budgeting. Psychological contract breach leads to feelings of violation and distrust, even when the terms of the employees’ economic contracts are fulfilled. We examine if employees who experience psychological contract breach seek redress by increased budgetary misreporting. Experimental results indicate that psychological contract breach partially mediates the relation between budgeting type and budgetary misreporting. Moreover, the effects of budgeting type on budgetary misreporting persist in the future, even when budgeting is affirmative.

    Keywords: Budgeting; psychological contracts; misreporting; Business or Company Management; Trust; Budgets and Budgeting;


    Gallani, Susanna, Ranjani Krishnan, Eric J. Marinich, and Michael D. Shields. "Budgeting, Psychological Contracts, and Budgetary Misreporting." Harvard Business School Working Paper, No. 16-017, August 2015. (Revised December, 2016.) View Details
  4. Applying the Fractional Response Model to Survey Research in Accounting

    Susanna Gallani and Ranjani Krishnan

    Survey research studies make extensive use of rating scales to measure constructs of interest. The bounded nature of such scales presents econometric estimation challenges. Linear estimation methods (e.g. OLS) often produce predicted values that lie outside the rating scales, and fail to account for nonconstant effects of the predictors. Established nonlinear approaches such as logit and probit transformations attenuate many shortcomings of linear methods. However, these nonlinear approaches are challenged by corner solutions, for which they require ad hoc transformations. Censored and truncated regressions alter the composition of the sample, while Tobit methods rely on distributional assumptions that are frequently not reflected in survey data, especially when observations fall at one extreme of the scale owing to surveyor and respondent characteristics. 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 first review the econometric characteristics of the FRM and discuss its applicability to survey-based studies in accounting. Second, we present results from Monte Carlo simulations to highlight the advantages of using the FRM relative to conventional models. Finally, we use data from a hospital patient satisfaction survey, compare the estimation results from a traditional OLS method and the FRM, and 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, and Ranjani Krishnan. "Applying the Fractional Response Model to Survey Research in Accounting." Harvard Business School Working Paper, No. 16-016, August 2015. (Revised January 2017.) View Details

Cases and Teaching Materials

  1. Cost Variance Analysis

    Robert S. Kaplan and Susanna Gallani

    The Cost Variance Analysis note was written to provide students with fundamental concepts and methods for the analysis of cost variances. This note focuses on the decomposition of cost variances into price, quantity and mix variance components, an approach that allows students to identify the root causes of differences between expected and actual costs.

    Keywords: Cost Accounting;


    Kaplan, Robert S., and Susanna Gallani. "Cost Variance Analysis." Harvard Business School Background Note 117-006, October 2016. View Details
  2. Springfield Hospital

    Susanna Gallani and Robert Kaplan

    One of the key roles of costing systems is to support the evaluation of performance and facilitate appropriate resource allocations. Through participation in a comparative cost study, management at Springfield Hospital, known for its heavy focus on operational excellence, become aware of opportunities for further improvement. Analysis of the differences in costs, uses, and allocations of resources will inform management in the decision and implementation of strategic plans. This case stimulates reflections on the importance of costing systems, in particular Time-Driven Activity Based Costing, and variance analysis as decision support mechanisms.

    Keywords: Activity Based Costing and Management; Health Care and Treatment; Health Industry;


    Gallani, Susanna, and Robert Kaplan. "Springfield Hospital." Harvard Business School Case 117-025, September 2016. View Details
  3. VMD Medical Imaging Center

    Susanna Gallani and Eva Labro

    VMD Medical Imaging Center addresses a number of issues related to the role of costing systems in organizations and the challenges impacting their design and maintenance as the organization grows and develops over time. This teaching note begins by offering detailed suggestions for effective class discussions centered on the main issue addressed by the case (i.e. the need to revisit the costing system in light of a change in the demand mix for the services offered by the organization). In the second part of the teaching note, the authors provide suggestions for several additional avenues along which instructors can develop further discussion about the integration points between costing systems and other important activities, such as strategy definition and execution, transfer pricing, and cross-functional coordination.

    Keywords: Strategy; Cost Management; Management Systems;


    Gallani, Susanna, and Eva Labro. "VMD Medical Imaging Center." Harvard Business School Teaching Note 117-003, August 2016. View Details
  4. 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
  5. 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