A recent strand of the literature argues that productivity differences among firms are largely attributable to management quality, both in terms of the people running the firm and of the practices adopted. To date, very little is known about the interaction between the two factors. This paper proposes a measure of managerial talent for Italian firms and, using data from the Survey of Industrial and Service Firms, examines the complementarities between the talent of firm leaders and the adoption of managerial practices in determining firm performance.
Our measure of talent correlates with ex-ante and ex-post indicators of ability, i.e. managers' educational attainment and their forecast precision regarding the firm's future performance. While talented managers do boost firm productivity on their own, there is evidence that they are better able to leverage structured managerial practices. Such complementarities are more pronounced when considering practices that link workers' pay to the achievement of performance objectives ('performance-pay').